Technological Content and Institutional Quality of FDI: Investigating the effects on the environment in Brazil

Abstract

Research indicates that Foreign Direct Investment (FDI) can have both positive and negative effects on the host country's environment. However, the mechanisms underlying these contrasting outcomes remain unclear. This study investigates how the technological content of FDI influences the host region by analyzing regional data from the State of São Paulo, Brazil. In addition, drawing on insights from the institution-based view, the study considers the role of the origin of FDI and the institutional quality of the investors' home countries. The findings challenge the commonly applied ‘one-size-fits-all’ perspective on FDI. Both high- and low-technology investments can contribute to sustainable development in the host region. However, the source of the foreign investment plays a critical role: FDI from countries with weaker institutional frameworks can have harmful effects, regardless of the sector involved. These insights carry significant implications for policymakers and scholars, particularly in the context of emerging economies, suggesting that the assumed benefits of FDI warrant closer scrutiny.