Role of collaborative governance in unlocking private investment in sustainable projects

Climate change poses a significant threat, exacerbated by post-pandemic economic rebounds. Sustainable development, integrating economic, social, and environmental aspects, is crucial for mitigation. A major obstacle is the scarcity of capital for sustainable projects, requiring substantial upfront costs and long-term investments. Private investment is vital, particularly in low and lower-middle-income economies where state funding is insufficient. This study focuses on the role of collaborative governance (proxied by a good governance index) in attracting private investment in sustainable projects within 11 vulnerable Asian countries. It addresses a critical gap in the literature by examining the impact of collaborative governance on private green investment in this specific context, contributing nuanced insights into effective public-private collaborations and informing policy recommendations for attracting private capital and accelerating sustainable development.

Existing literature highlights the importance of sustainable development in addressing climate change, encompassing economic, social, and environmental dimensions. Another strand emphasizes the crucial role of private investment in green projects, identifying incentives and public-private partnerships (PPPs) as key drivers. The concept of collaborative governance has also gained prominence, showcasing its influence on achieving sustainability goals through stakeholder collaboration, transparency, and shared responsibility. However, a significant gap exists regarding the impact of collaborative governance on private investment in green projects, specifically within low and lower-middle-income Asian countries. This study bridges this gap by focusing on this under-researched area.

This study uses annual data from 2000 to 2020 for 11 low and lower-middle-income Asian countries (Bangladesh, Cambodia, Iran, India, Lao PDR, Myanmar, Turkmenistan, Mongolia, Vietnam, Philippines, and Sri Lanka). The primary dependent variable is private investment in green projects, with the good governance index as the main explanatory variable. Control variables include economic uncertainty, GDP, the number of SMEs, and total bank loans. The study first tests for cross-sectional dependence using the Pesaran (2004) CD test and the Breusch-Pagan (1980) LM test. Given the presence of cross-sectional dependence, the CADF and CIPS panel unit root tests are used. The Westerlund (2007) cointegration test is then applied to determine long-run relationships. Finally, the CS-ARDL method is employed to estimate both short-run and long-run effects, accounting for cross-sectional dependence. Robustness checks, including a time series analysis focusing on the Philippines and stability tests (CUSUM and CUSUM squared), are conducted to ensure the reliability of the findings.

The CS-ARDL estimation reveals a significant positive relationship between the good governance index and private investment in green projects. A 1% increase in the good governance index leads to a 0.34% increase in short-term and a 0.64% increase in long-term private investment. Conversely, a 1% increase in economic uncertainty reduces private investment by 0.56% in the short term and 0.73% in the long term. GDP growth and the number of SMEs are positively associated with private investment in green projects. However, total bank loans are not statistically significant. Robustness checks using the ARDL method on the Philippines' data largely confirm the initial findings.

The findings highlight the crucial role of collaborative governance in attracting private investment for sustainable development, particularly in vulnerable economies. Good governance fosters trust, reduces uncertainty, and encourages long-term investment in green projects. Economic stability is paramount, as uncertainty significantly deters investment. Economic growth and a thriving SME sector further contribute to increased private investment. The lack of statistical significance for bank loans suggests the need for more targeted financial instruments to channel capital into green initiatives. These results are robust to alternative estimation techniques.

This study demonstrates the significant positive impact of collaborative governance on private investment in green projects in low and lower-middle-income Asian countries. Policy recommendations include promoting e-government services, ICT-driven digital transformation, sustainable corporate governance, and the issuance of green bonds. Future research should investigate the pandemic's effects on private green investment and explore the efficacy of public-private partnerships in promoting sustainable projects within these economies.

The study relies on a specific good governance index and may not capture all aspects of collaborative governance. Data limitations constrain the analysis to a specific set of countries and time period. The analysis assumes a linear relationship between variables, and non-linear relationships might also exist. The study may not account for unobserved heterogeneity that could affect investment decisions.