Sectoral Foreign Direct Investment, Institutional Quality, and Environmental Sustainability: Evidence from CEE countries

Paul Laurențiu Baranga, Andreea Elena Croicu and Oana Cristina Popovici

European Journal of Interdisciplinary Studies, 2026, issue 01

Abstract: This paper examines the relationship between sectoral foreign direct investment, institutional quality, and environmental sustainability in Central and Eastern European countries. The analysis is based on a balanced panel dataset covering Bulgaria, the Czech Republic, Croatia, Poland, Romania, Slovakia, and Slovenia over the period 2010-2023. Environmental sustainability is measured using two indicators: ecological footprint and CO2 emissions. The study considers both total FDI and sectoral FDI in mining and quarrying, manufacturing, electricity and gas, construction, and services. Institutional quality is captured through a composite index constructed from control of corruption, government effectiveness, political stability, regulatory quality, rule of law, and voice and accountability. Using fixed-effects panel models with country and year effects, the paper investigates whether institutional quality moderates the environmental impact of FDI. The results suggest that the relationship between FDI and environmental sustainability differs across environmental indicators and sectors. Total FDI is negatively associated with CO2 emissions in the baseline model, while its relationship with ecological footprint is not statistically significant. The moderation results indicate that institutional quality plays a sector-specific role, particularly in the CO2 models, where stronger institutions reduce the environmental impact of total FDI, manufacturing FDI, and services FDI. These findings highlight the importance of considering both the sectoral composition of FDI and institutional conditions when assessing the environmental implications of foreign investment in CEE economies.

Keywords: Foreign direct investment (FDI); sectoral FDI; institutional quality; environmental sustainability; ecological footprint (search for similar items in EconPapers)
JEL-codes: F18 F21 Q56 (search for similar items in EconPapers)
Date: 2026
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ejist.ro/files/pdf/583.pdf (application/pdf)
https://ejist.ro/abstract/583/Sectoral-Foreign-Dir ... d-Environmental.html (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jis:ejistu:y:2026:i:01:id:583

Access Statistics for this article

More articles in European Journal of Interdisciplinary Studies from Bucharest Economic Academy Contact information at EDIRC.
Bibliographic data for series maintained by Alina Popescu ().