THE IMPACT OF DIGITALIZATION AND GREENING ON FDI IN THE EU IN THE VUCA ERA
DOI:
https://doi.org/10.62985/j.huit_ojs.vol26.no3E.548Keywords:
VUCA, Foreign Direct Investment, digitalization, greening, European Union, SGMM.Abstract
The twin green and digital transition has become a central policy priority for achieving carbon neutrality in the European Union (EU) by 2050. However, increasing global uncertainty—often characterized by volatility, uncertainty, complexity, and ambiguity (VUCA)—poses significant challenges to foreign direct investment (FDI) inflows. This study empirically examines the impact of digitalization and greening on FDI in the EU, with particular emphasis on the moderating role of the political environment as a proxy for institutional conditions under uncertainty. Using panel data from 27 EU countries over the period 2018–2023, the study applies a dynamic panel estimation approach based on the System Generalized Method of Moments (SGMM) to address endogeneity and capture the persistence of FDI. The results indicate that digitalization has a positive and statistically significant effect on FDI inflows, whereas greening exerts a negative impact in the short term. Furthermore, the political environment strengthens the positive effect of digitalization while amplifying the negative effect of greening, highlighting the importance of institutional quality in shaping investment outcomes. The findings suggest that while digital transformation enhances the attractiveness of host countries to foreign investors, environmental policies may impose short-term adjustment costs that influence investment decisions. Overall, the study provides empirical evidence that the effects of digitalization and greening on FDI are conditional on institutional factors, rather than reflecting the full spectrum of the VUCA framework.
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