Role of collaborative governance in unlocking private investment in sustainable projects

The study addresses the global challenge of climate change and the urgent need for sustainable development that balances economic, social, and environmental goals. Post-pandemic economic rebounds have intensified environmental pressures, reinforcing the necessity of green transitions. A central impediment is capital scarcity for sustainable projects such as renewable energy, green transport, waste management, and sustainable agriculture. To bridge this gap, private investment is essential, especially in non-high-income economies where public funds are limited. Collaborative (good) governance is posited as a key enabler that builds trust, transparency, and stable regulatory frameworks, thereby attracting private capital. The research focuses on low and lower-middle-income Asian countries that are highly vulnerable to climate change and often lack sufficient state capital. It investigates how good governance, as a proxy for collaborative governance, affects private investment in green projects and contributes to sustainable development. The study contributes by concentrating on this underexplored regional and income context, offering empirical insights to inform policy and collaborative models that can mobilize private-sector engagement.

The literature emphasizes sustainable development as integrating environmental stewardship, social equity, and economic growth to mitigate climate change, including transitions to renewables, energy efficiency, sustainable urban planning, and responsible consumption and production. A substantial strand examines private investment as a driver of green projects, highlighting the role of incentives, supportive policies, and public-private partnerships (PPP) in mobilizing capital and aligning returns with sustainability objectives. Collaborative governance emerges as pivotal, fostering multi-stakeholder coordination, transparency, inclusivity, and shared responsibility that enhance capacity to address complex sustainability challenges and build resilience. A key gap identified is the limited evidence on how collaborative (good) governance affects private investment in green projects in low and lower-middle-income Asian countries. Understanding this relationship and the mechanisms—such as PPP facilitation and risk reduction—is crucial for tailoring strategies to mobilize private capital in these vulnerable economies.

The study examines 11 low and lower-middle-income Asian countries—Bangladesh, Cambodia, Iran, India, Lao, Myanmar, Turkmenistan, Mongolia, Vietnam, the Philippines, and Sri Lanka—over 2000–2020 (231 observations). The dependent variable is private investment in green projects (PIGP). Key independent variables include the good governance index (GGIN), economic uncertainty index (UNE), GDP, number of SMEs (SME), and total loans provided by banks (LPB). Data sources: Climate Bonds Initiative and national statistics (PIGP), World Bank (GGIN, GDP, LPB), www.economicuncertainty.com (UNE), and national databases (SME). The baseline panel model (in logs) is: LPIGP_it = C0 + γ1 LGGIN_it + γ2 LUNE_it + γ3 LGDP_it + γ4 LSME_it + γ5 LLPB_it + ε_it. Preliminary diagnostics assess cross-sectional dependence via Breusch-Pagan LM and Pesaran CD tests and slope homogeneity via delta tests, indicating significant cross-sectional dependence and slope heterogeneity. Given CD, panel unit roots are tested with Pesaran’s CADF and CIPS, showing mixed I(0)/I(1) orders. Long-run relationships are evaluated using Westerlund (2007) cointegration tests, which confirm cointegration. Estimation employs the cross-sectional ARDL (CS-ARDL) to obtain short- and long-run elasticities while accounting for CD. Robustness checks include CUSUM and CUSUM-squared stability tests and a country-specific ARDL time-series analysis for the Philippines.

• Diagnostics: Strong cross-sectional dependence across variables (e.g., P-CD and BP LM tests significant at p=0.00) and slope heterogeneity (delta ≈10, p=0.00). CADF/CIPS indicate variables are I(0)/I(1). Westerlund tests (robust p-values ≤0.04) confirm panel cointegration. The CS-ARDL model is stable (CUSUM and CUSUM-squared within 5% bounds). - Governance effect: A 1% increase in the good governance index is associated with a 0.34% short-run and 0.64% long-run rise in private investment in green projects (both statistically significant; long-run z=8.53, p=0.00; short-run z=7.89, p=0.01). - Economic uncertainty: A 1% increase in uncertainty reduces private participation by about 0.56% in the short run and 0.73% in the long run (long-run z=-11.10, p=0.01; short-run z=-8.35, p=0.09). - Macroeconomic and enterprise factors: GDP and SME counts positively affect private investment (long-run GDP 0.26, z=5.43, p=0.07; long-run SME 0.07, z=6.65, p=0.03). Total bank loans are not statistically significant in either the short or long run. - Error-correction: ECT(-1) is -0.79 (z=-9.05, p=0.00), indicating a strong speed of adjustment toward long-run equilibrium. - Robustness (Philippines ARDL): Signs and significance generally align; governance positive (LR 0.25), uncertainty negative (LR -0.55), GDP and SMEs positive; bank loans remain insignificant.

The findings directly address the research question by demonstrating that better collaborative (good) governance substantially increases private investment in green projects, particularly over the long term, by fostering transparency, policy stability, and investor confidence. Conversely, elevated economic uncertainty deters private participation, with long-run effects larger than short-run, reflecting investors’ reluctance to commit to long-horizon green assets under instability. Economic growth (GDP) and a dynamic SME sector further catalyze private green investment, consistent with increased resources and agility/innovation among SMEs. The lack of significance for total bank loans suggests that generic credit expansion does not automatically translate into green investment without tailored instruments or incentives. Overall, the study underscores that governance quality and macro-stability shape the investment climate necessary to mobilize private capital for sustainability in resource-constrained, climate-vulnerable economies.

This paper shows that collaborative governance, proxied by a good governance index, is a key determinant of private investment in green projects across 11 low and lower-middle-income Asian countries (2000–2020). Using CS-ARDL, the study finds governance improvements raise private participation more in the long run than the short run, while higher economic uncertainty depresses it, particularly over longer horizons. GDP growth and SME development support green investment; general bank lending is not a significant driver. Policy recommendations include: expanding e-government services to streamline procedures and enhance transparency; advancing ICT-enabled digital transformation to spur efficiency and innovation; promoting sustainable corporate governance/management; and issuing state-backed green bonds to channel capital to green projects. Future research should examine the impacts of COVID-19 on private green investment dynamics and evaluate/enhance PPP models for green projects in these economies.