Human Capital, Foreign Direct Investment and Sustainable Regional Development in SADC Economies

Foreign direct investment (FDI) is widely regarded as an important driver of economic development, yet its contribution to sustainable regional development remains contested in developing economies. This study examines the relationships among human capital (HCI), FDI, and sustainable regional development in 13 Southern African Development Community (SADC) economies over the period 2003–2022. Using a dual-equation Autoregressive Distributed Lag Pooled Mean Group (ARDL-PMG) framework, the study estimates both the determinants of FDI inflows and the relationship between FDI and environmental, social, and governance (ESG) performance. The results indicate that institutional quality (INS) and economic growth (GDP) are the principal long-run determinants of FDI inflows, while HCI, inflation (I), natural capital (NC), and infrastructure development (INF) are not statistically significant. In the ESG model, FDI exhibits a negative and statistically significant long-run relationship with ESG performance, suggesting that higher aggregate FDI inflows do not automatically translate into stronger sustainability outcomes. By contrast, NC and INF exert positive and significant long-run effects on ESG performance, whereas HCI, GDP, and inflation remain insignificant. In the short run, institutional quality exerts a negative effect on FDI inflows, while FDI positively influences ESG performance, although these effects are not sustained over time. The findings indicate that the determinants of FDI attraction differ from those underpinning sustainability outcomes. By directly estimating the FDI-ESG relationship within a unified ARDL-PMG framework, the study provides one of the first SADC-focused assessments of whether the factors that attract FDI also contribute to measurable sustainability outcomes. The results demonstrate that investment attraction and sustainable regional development should be regarded as related but distinct policy objectives in SADC economies.