Foreign Direct Investment, Institutional Quality, and Sustainability‐Development Configurations: Evidence From Eight ASEAN Economies

ABSTRACT

This study examines the associations of institutional quality and foreign direct investment (FDI) with economic–industrial–environmental development configurations in eight ASEAN economies over 2002–2024. Using K‐means clustering of within‐country standardized indicators of economic growth, industrialization, and carbon intensity, we identify three distinct configurations: Growth‐Constrained, Industry‐Intensive, and Low‐Carbon. A composite Institutional Quality Index is constructed using principal component analysis (PCA), while multinomial logit models are employed to examine the correlates of configuration membership. The Low‐Carbon configuration accounts for 57.6% of observations, followed by Industry‐Intensive (35.3%) and Growth‐Constrained (7.1%). The results show that higher FDI inflows are associated with a greater probability of Industry‐Intensive membership and a lower probability of Low‐Carbon membership, suggesting that aggregate FDI is more closely associated with industry‐intensive development profiles than with relatively lower‐carbon configurations. Institutional quality exhibits no statistically significant association with configuration membership in the baseline specification, although its estimated relationship is sensitive to the standardization benchmark. These findings highlight the importance of distinguishing relative development configurations from absolute sustainability performance and suggest that the environmental implications of FDI may depend on the composition and technological characteristics of investment.