Foreign Direct Investment: Driving Sustainable Development or Falling Short?

Lapinskaitė Indrė () and Stankevych Viktoriia ()
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Lapinskaitė Indrė: Vilnius Gediminas Technical University, Vilnius, Lithuania
Stankevych Viktoriia: Vilnius Gediminas Technical University, Vilnius, Lithuania

Economics and Culture, 2025, vol. 22, issue 1, 1-16

Abstract: Research purpose. As countries increasingly rely on foreign direct investment to support economic growth, questions arise about its broader implications for social equity and environmental sustainability. This research aims to investigate the direct and indirect impact of FDI on the sustainable development of developed and developing European countries. Design / Methodology / Approach. This study applies Pearson correlation analysis and a Fixed Effect Panel Regression model to assess FDI’s influence on sustainable development outcomes across 34 European countries from 2007 to 2022. The approach distinguishes between developed and developing economies to uncover nuanced effects and context-specific dynamics. The data was collected from The Global Economy (2024) and Sustainable Development Report (2023). In total, 21 indicators were analysed. Findings. The results indicate that FDI has a complex and varied impact on sustainable development. In developed European countries, while FDI contributes to institutional strength and technological advancement, it does not consistently lead to improved sustainability outcomes. Conversely, in developing European countries, FDI shows a modestly positive effect on SD, primarily driven by human development and institutional quality gains. However, aligning FDI-driven innovations with long-term sustainability goals remains inconsistent across contexts. Originality / Value / Practical implications. This study uniquely dissects FDI’s impact on sustainable development by comparing developed and developing European countries, revealing important institutional and contextual differences. Integrating the SDG Index and key mediating factors provides a refined analytical framework. The findings offer actionable insights for policymakers, emphasising that FDI’s contribution to sustainability depends on tailored strategies that align investment with local development priorities.

Keywords: sustainable development; foreign direct investment; sustainable development goals index; European countries (search for similar items in EconPapers)
JEL-codes: F21 O52 Q01 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:ecocul:v:22:y:2025:i:1:p:1-16:n:1001

DOI: 10.2478/jec-2025-0001

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