Assessing the Pathways of Sustainable Development: A Structural Equation Modeling Investigation of Regulatory Framework, Innovation and Economic Indicators

Abstract

The concept of sustainable development holds significant importance for both current and future generations. This research examines the different pathways and relationships among sustainable development, stock market performance, foreign direct investment, regulatory framework, and innovation. The structural equation modelling technique and analysis have been conducted using a sample of 24 countries that contributed around 65% of global greenhouse gas emissions over the period from 2000 to 2019. The empirical analysis, based on direct effects, confirms that innovation enhances stock market performance and necessitates stringent regulations. Conversely, innovation reduces foreign direct investment. Similarly, a set of regulations and stock market performance have an adverse impact on sustainable development. Additionally, the empirics of indirect effects reveal that innovation and stock market performance encourage foreign direct investment by using regulations as mediators. Moreover, innovation reduces sustainable development indirectly, considering stock market performance and foreign direct investment as mediators.