COUNTRY GOVERNANCE AND SUSTAINABLE DEVELOPMENT: WGI AS A DRIVER OF FDI AND HUMAN DEVELOPMENT IN SOUTHEAST ASIA

Abstract

The relationship between governance and development is a cornerstone of modern political economy, yet the precise impact of its constituent dimensions remains contested. This study provides a disaggregated analysis of this linkage by examining the effect of six World Governance Indicators (WGI)—rule of law, regulatory quality, government effectiveness, control of corruption, voice and accountability, and political stability—on two critical outcomes: the Human Development Index (HDI) and Foreign Direct Investment (FDI). Using panel data from [number] Southeast Asian countries over the period [2002–2023], we employ fixed-effects regressions with clustered and Driscoll–Kraay standard errors to address heteroskedasticity, autocorrelation, and cross-sectional dependence.The findings highlight both expected patterns and surprising paradoxes. Rule of law, regulatory quality, and political stability consistently emerge as powerful catalysts for human development and FDI attraction. Trade openness also exerts a positive influence, but its effect on HDI becomes visible only when accounting for cross-sectional dependence. In contrast, institutional paradoxes are evident: voice and accountability show a negative association with HDI, while stronger control of corruption is correlated with lower FDI inflows—suggesting that institutional reforms may generate short-term trade-offs.These results challenge the monolithic narrative of “good governance,” revealing that institutional impacts on development are complex and non-linear. The study underscores the importance of sequencing reforms and tailoring governance strategies to local contexts, with implications for both policymakers and international development agendas seeking to balance economic growth and social progress in Southeast Asia.