Foreign direct investment and inclusive green growth: the differential roles of entry modes in sustainable development

Amid accelerating global decarbonization and ongoing efforts to achieve the Sustainable Development Goals (SDGs), inclusive green growth (IGG) has emerged as a key development objective for many economies. Foreign direct investment (FDI), as an important channel for cross-border capital and technology flows, plays a key role in shaping IGG outcomes. Existing studies have yet to systematically examine how FDI influences IGG, particularly the heterogeneous effects associated with different entry modes, including mergers and acquisitions (M&A) and greenfield foreign direct investment (GFDI). Using a panel dataset of 106 countries from 2003 to 2023, this study employs fixed-effects estimations to examine the effects of overall FDI and its two entry modes on IGG, as well as the underlying mechanisms. The results show that overall FDI inflows promote IGG in host countries. Notably, M&A fosters IGG, while GFDI hampers IGG. Compared with developed countries, FDI exerts a stronger positive effect on IGG in developing economies, while the inhibitory effect of GFDI on IGG is also more pronounced. Over time, the positive contribution of M&A has weakened, while the adverse impact of GFDI has gradually moderated. Further analysis suggests that lower levels of technological innovation and weaker governance quality amplify the IGG-enhancing effects of FDI and M&A. This study offers actionable guidance for policymakers, emphasizing the importance of tailoring investment governance frameworks by distinguishing FDI entry modes and accounting for national development conditions to better align foreign investment with IGG goals and the SDGs.