Absorptive capacity for technology transfer: Does private-sector credit condition the FDI–SDG relationship?

The study investigates whether domestic financial development enhances the contribution of foreign direct investment to sustainable development, with a focus on SDG 9. Using panel data for 43 countries from 2005 to 2023 and a range of fixed-effects and dynamic estimation techniques, it finds that FDI does not significantly affect overall SDG performance but has a positive effect on industrialisation, innovation, and infrastructure outcomes. Private-sector credit shows no consistent direct impact, and its interaction with FDI provides little evidence that financial depth strengthens FDI’s development effects. Governance quality improves the direct influence of FDI on SDG 9, but does not alter the weak financial–FDI complementarity. The results indicate that FDI’s development impact is sector-specific and institution-dependent, and that broad measures of financial deepening do not automatically support technology diffusion or structural transformation. The study contributes to the sustainable development and international investment literature by demonstrating that domestic finance does not automatically function as an absorptive-capacity channel for FDI, even in relatively strong governance environments. JEL Classification Codes: F21, O16, O25, O33, Q01, C23