How Improving the Quality of Foreign Direct Investment Can Promote Sustainable Development: Evidence from China

Sustainable development is an inevitable derivative outcome of the advancement of social productive forces and the innovation of science and technology. In the current era, a multitude of global issues are intertwined. Sustainable development provides ideas and approaches of crucial value for resolving these difficult situations. This study constructs a micro-level indicator system to assess the quality of foreign direct investment and measures the quality of FDI in China from 2011 to 2022. Using the two-way fixed effects panel model, this study empirically tests the impact of FDI quality on China’s sustainable development and deeply examines the industry heterogeneity. The findings reveal that (1) micro-level FDI quality indicators avoid aggregation bias and lagged responses inherent in macro-level analyses, enabling precise and timely detection of foreign firms’ reactions to macroeconomic shifts. (2) Enhancing FDI quality exerts a positive and significant effect on China’s sustainable development, with notable variations across industries. (3) Further analysis shows that, first, in eastern coastal provinces, well-functioning market mechanisms amplify the positive externalities of high-quality FDI on resource allocation. Second, the moderating role of intellectual property protection in FDI’s human capital effects exhibits significant heterogeneity across industries.