Does Regulatory Quality Matter? Evidence from FDI, Carbon Emissions, and Economic Growth in ASEAN Countries

Abstract

Economic growth in ASEAN countries is closely linked to the role of foreign investment and environmental issues influenced by institutional quality. This study aims to analyze the effects of Foreign Direct Investment (FDI) and carbon emissions (CO₂) on economic growth, as well as to examine the role of regulatory quality as a moderating variable. This research adopts a quantitative approach using a panel data design across several ASEAN countries. The population consists of ASEAN member states, with the sample including Indonesia, Malaysia, Thailand, Vietnam, and the Philippines. Secondary data were obtained from the World Bank and the Worldwide Governance Indicators. The variables used in this study include GDP, FDI, CO₂ emissions, and regulatory quality. Data analysis was conducted using Moderated Regression Analysis (MRA). The results show that FDI and carbon emissions do not have a statistically significant effect on economic growth, while regulatory quality has a positive and significant effect. Moreover, regulatory quality moderates the relationship between FDI and economic growth in a negative direction. In conclusion, regulatory quality is a key factor in determining the effectiveness of foreign investment. The implication of this study is that strengthening governance is essential to promote sustainable economic growth in ASEAN countries.