Does Institutional Quality and Clean Energy Investment Matter for Foreign Direct Investment Inflows? Panel Evidence From BRICS Economies

Institutional structures and energy‐transition investments have emerged among core factors shaping cross‐border capital flows, particularly within ongoing sustainability debates. This study examines the dynamic nexus of institutional quality, clean energy investment, and foreign direct investment (FDI) inflows in BRICS economies from 1996 to 2021. Employing panel cointegration, fully modified ordinary least squares, and panel threshold estimation models, the study establishes evidence of a stable long‐run relationship and a statistically significant threshold effect of clean energy investment on FDI inflows. Market size and renewable energy investment emerge as principal drivers of foreign investment, while institutional quality and inflation exhibit limited statistical influence, suggesting that investment decisions are more associated with structural and sustainability‐related factors than with institutional conditions alone. Overall, these findings suggest that market size and clean energy investment constitute important location‐specific advantages within BRICS economies, whereas institutional quality does not appear to represent a decisive location advantage. Drawing inferences from aggregate country‐level FDI patterns, the study contributes to international business literature by highlighting the strategic importance of sustainability‐related investment as a location‐specific advantage that may influence host country attractiveness to MNEs and shape aggregate FDI patterns in emerging markets.