Digital Connectivity and Foreign Direct Investment in BRICS and ASEAN-5: The Moderating Role of Institutional Quality

Developing and emerging economies seek Foreign Direct Investment (FDI) to support economic growth. Grounded in Dunning’s eclectic paradigm and North’s institutional theory, this study examines whether institutional quality moderates the association between digital connectivity and FDI inflows across governance dimensions in Brazil, Russia, India, China, and South Africa (BRICS) and Association of Southeast Asian Nations (ASEAN)-5 economies during 2003–2023, with robustness checks using ASEAN-6. Results show heterogeneous patterns across institutional dimensions and country groups. In BRICS, interactions with Rule of Law, Regulatory Quality, and Voice and Accountability are positive and significant in baseline models, although bootstrap results support only Rule of Law and Voice and Accountability. In ASEAN-5, institutional indicators and interactions are insignificant. Digital connectivity is negative in baseline models, while the Inverse Hyperbolic Sine (IHS)-transformed FDI specification yields positive and significant coefficients in BRICS. Importantly, institutional interactions become insignificant under the IHS specification, indicating that evidence of moderation is sensitive to FDI measurement and inferential procedures rather than reflecting a general institutional mechanism. The study provides a multidimensional assessment of institutional quality in the digital connectivity–FDI association.