ABSTRACT In the context of rising global uncertainty driven by geopolitical tensions, recurrent financial crises, and cyclical economic fluctuations, the role of foreign direct investment (FDI) in advancing sustainable development (SD) remains debated. Previous studies have often addressed SD through fragmented dimensions and employed traditional econometric methods limited by endogeneity and weak inference. To overcome these gaps, this study applies a Bayesian regression framework to a balanced panel of 54 countries from 2002 to 2023, constructing a composite SD index that integrates economic, social, and environmental pillars. The Bayesian approach mitigates econometric challenges and provides posterior probabilities of parameter impacts, offering richer insights than conventional techniques. The results show that FDI exerts a positive, though modest, effect on SD with a posterior probability of 88.38%, confirming its role in fostering growth, employment, and technology transfer. Economic cycle dynamics indicate that FDI's benefits are amplified during expansions but weaken in recessions, underscoring the need for countercyclical policies. Geopolitical risks strongly undermine SD, while FDI's resilience remains limited, highlighting the importance of international cooperation and investment diversification. Financial crises further erode the developmental role of FDI, emphasizing robust regulation and macroprudential safeguards. Finally, institutional quality significantly enhances FDI's contribution, underscoring the importance of governance reforms. Drawing on these findings, we propose that countries should carefully assess the role of FDI in advancing sustainable development within environments characterized by political uncertainty, financial instability, and cyclical economic fluctuations.
Dĩnh et al. (Fri,) studied this question.