Green finance softens foreign investment’s negative association with Southeast Asian green growth

A panel study of seven Southeast Asian economies found that greater green finance weakened, but did not reverse, the negative association between foreign direct investment and green economic growth. The analysis covered 2013–2023 and reported a positive, statistically significant interaction between green finance and foreign direct investment, indicating that higher green finance attenuated the adverse association within the observed sample. The study therefore supports moderation rather than a complete sign reversal.

The research used pooled ordinary least squares, fixed-effects, random-effects and feasible generalized least-squares models to examine the relationships among foreign direct investment, financial development and green economic growth. Across these approaches, foreign direct investment and conventional financial development were negatively associated with green economic growth, while green finance was positively associated with it. The positive interaction term means that the estimated relationship between foreign direct investment and green economic growth became less negative as green finance increased.

The authors also checked whether the model implied a point at which foreign direct investment’s estimated association with green economic growth could cross from negative to positive. On the ln(1 + investment) scale used in that check, the implied zero crossing occurred at a green-finance value of 30.5. However, observed green-finance values in the study ranged only from 0 to 7.04.

The study therefore found no support for an in-sample sign reversal or an actionable monetary threshold; the projected crossing point was well outside the range represented by the data. Sensitivity analyses broadly preserved the direction of the main results. Models using an alternative dependent variable and specifications incorporating time fixed effects retained the direction of the principal coefficients.

They do not, however, turn the observational panel results into causal evidence or establish that the same relationship would hold in economies outside the seven-country sample. The findings identify green finance as a moderator of the observed relationship between foreign direct investment and green economic growth. In this context, higher green finance is associated with a smaller negative association, not with the disappearance of that association across the sampled economies and years.

Its strongest supported conclusion is that green finance can mitigate the adverse association linking foreign direct investment with green economic growth in the studied Southeast Asian panel, without fully reversing it in sample.

Subject of Research: Green finance as a moderator of foreign direct investment and green economic growth in seven Southeast Asian economies

Article Title: Green finance moderates the association between foreign direct investment and green economic growth in Southeast Asian economies

Article References: Pham, T. T., Nguyen, T. D., Luu, H. D., Tran, A. Q., Le, K. C., Nguyen, M. H., & Nguyen, M. H. (2026). Green finance moderates the association between foreign direct investment and green economic growth in Southeast Asian economies. Discover Sustainability. https://doi.org/10.1007/s43621-026-04795-1

Image Credits: AI Generated

DOI: 10.1007/s43621-026-04795-1

Keywords: green finance, foreign direct investment, green economic growth, Southeast Asia, panel econometrics, financial development, moderation analysis, sustainable development, Green, finance, moderates, association