Financing Sustainable Development, Which Factors Can Interfere?: Empirical Evidence from Developing Countries

Abstract

The role of sustainable development financing resources in achieving sustainable development goals is one of the most important topics talked about in the recent sustainable development conflict, especially in the developing countries. Using the Autoregressive Distributed Lag (ARDL) model over the period 2002–2018, this study attempts to better identify sustainable development financing resources and examine their role in simultaneously ensuring economic growth and achieving social and environmental objectives in 24 developing countries. We found that increases in official development assistance, public debt, and remittances impede economic growth and human development and increase environmental pollution. Thus, they inhibit sustainable development. However, our findings demonstrated that foreign direct investment and international trade, which enhance economic growth, do not have any effect on CO2 emissions, while foreign direct investment inflows boost human development and international trade seems detrimental to it. Our study also show the effectiveness of CREDIT in achieving sustainability goals by reducing environmental degradation and improving economic growth and human development. Moreover, these empirical results may draw the attention of policymakers as they help them build rigorous economic policies to sustain economic development.

1. Introduction

Sustainable development has become a popular catchphrase in contemporary development discourses. It has been defined in many ways. Most of the definitions are related to specific concepts, such as living within the bounds, understanding the different interconnections between economies, communities, the environment, and the equilibrium distribution of resources and opportunities (Sustainable Measures). In this vein, [1] emphasized that sustainable development is a key contested concept. He quoted the conclusion of Paul Ekins, which indicated that sustainable development is “economically and technologically feasible, but requires lifestyle changes and guiding or fixing the economy” (as cited by [1], p. 9). In fact, the Brundtland report, also known as “Our Common Future”, which was released in 1987 by the World Commission on Environment and Development (WCED), gave the most recognized and widely accepted definition of the term “sustainable development”. In fact, according to this report, the concept of sustainable development, which was described, as “the human ability to ensure that the current development meets the needs of the present without compromising the ability of future generations to meet their own needs” was the major, generally known definition of sustainable development. Moreover, the World Commission on the Environment and Development pointed out that sustainable development should consider that development has some restrictions. According to this organization, “the present state of technology and the social organization on environmental resources, together with the limited ability of the biosphere to absorb the effects of human activities” may impose some constraints on sustainable development. However, while the biosphere is supposed to absorb the effects of human activities, sustainable development has many definitions, a common factor of which is the attention paid to the interconnection between the environment, the economy, and society, which are themselves generally linked to the three pillars of sustainable development. In fact, humanity can have neither an economy nor social well-being without a healthy environment, because it is the basis of any economy and social well-being that humanity tries to achieve. Therefore, in order to achieve the internationally agreed millennium development goals, the Monterrey Consensus of the International Conference on Financing for Development (Monterrey, Mexico, March 2002) commended mobilizing and increasing the efficient use of financial resources to finance sustainable development. Similarly, the third International Conference on Development Financing, which took place in Addis Ababa in 2016, established a program with the goal of eradicating poverty and ensuring long-term development. Therefore, the effective utilization of traditional and innovative finance resources in economic, social, and human development became a universal, prime goal. In this context, developing countries have, for many years, wanted to bring material changes to the international economic arrangements to make them more suitable, mainly with regard to financial flows, trade, transnational investment, and technology transfer. Consequently, the developing countries must now reorganize their opinions to reflect the environmental dimensions and think about solutions to overcome some of the difficulties by mobilizing new and additional resources, rearranging resources toward sustainable development investments, and building a harmonization between the three pillars of sustainable development by developing the rules and regulations that balance access to finance with the financial market stability and creating a healthy environment.

In this sense, our selection of the developing countries was justified by several reasons. In fact, the sustainable development goals aim to be universal, in the sense of incarnating a universally shared global vision of development towards a safe, just, and sustainable space for all social beings to prosper in the sphere. These goals reveal the ethical values that no one and no country should be left behind. Moreover, everyone and every country should be considered as having a common responsibility for playing their role in providing the universal vision. Consequently, all of the goals have been regarded as applying both as motivations and as challenges to all countries, such as the developing countries. Moreover, some of the sustainable development goals have been principally shaped and calibrated to definite the necessities and ambitions of the developing countries. On the other hand, the developing countries have several economic problems, such as poor infrastructure, political instability, corruption, and lack of skilled labor. These problems can dampen the accomplishment of the sustainable development objectives.

In fact, the present study is different from the previous studies on sustainable development in several ways. To the best of our knowledge, this is the first investigation to identify funding sources of sustainability. Moreover, the majority of the previous studies have focused only on one dimension of sustainable development [2]. Given this, the current paper not only focuses on the resources of funding that can achieve the objectives of economic growth, or environmental quality, or human development but also analyzes if these resources can achieve the objectives of sustainability. Furthermore, to find consistent and robust results, the study employed the ARDL model, given that this model can help analyze the relationship between the variables in the short and long term, and could be used when the independent variables are stationary at different levels, which is the case of our study.

Starting from these considerations, our purpose in this study is to identify the main sustainable development financing resources and clarify if those resources can simultaneously attain economic growth and advance social and environmental objectives.

The remainder of the paper is organized as follows. After the introduction presented above, Section 2 outlines the literature review, while Section 3 presents the methodology and describes the data used. Then, Section 4 outlines the main empirical results. Finally, Section 5 concludes and emphasizes the policy implications.

2. Literature Review

Mobilizing local resources for development is necessary to achieve sustainable development goals, which ensures the mobilization of international resources, and contributes to economic growth. In this vein, national governments should play a fundamental role in implementing sustainable economic policies. In fact, they are responsible for mobilizing and using public resources (the post-2015 Agenda). According to the European Commission (2015), the private sector is an essential motor for innovation, since it helps to ensure sustainable growth, facilitates trade, creates jobs, and reduces poverty. Therefore, businesses and consumers are crucial elements in the move towards sustainable development. In fact, in the emerging world, domestic resources are the principal source of financial development (European Parliament 2014). As part of national resources, public resources are more important than private investments, while government spending is the largest domestic investment [3]. Ref. [3] adds that, in the context of emerging and developing countries, domestic revenue mobilization amounted to $7.7 trillion in 2012, growing by 14% annually since 2000. However, the total international resource flows to the developing countries rose from around $1 trillion in 1990 to $2.1 trillion in 2015. This rise is justified in large part by the increase in FDI inflows, the lending, and the remittances. Moreover, in recent decades, several developing economies have shown a growing capacity to access international capital markets, where international long-term debt flows to the developing countries and which rose four-fold between 2000 and 2012. Subsequently, we shed light on the main sources of sustainable development of finance sources and their importance for the developing countries.

2.1. Sustainable Development Financing Resources

From Monterrey (2000) to [4], the United States emphasized the importance of development financing and its resources, either internal or external, public or private. In fact, these resources consist essentially of government tax revenues (TAX), public expenditure (PE), foreign direct investment (FDI), remittances (REMIT), official development assistance (ODA), international trade (TRADE), domestic credit to the private sector (CREDIT), and public debt (DEBT). These factors are actually considered as the main indicators for development finance [3]. Nevertheless, the government tax revenues and public expenditure are not available for all of the countries in our sample. So, in our study, we will focus on the effect of the six development finance resources, namely foreign direct investment (FDI), remittances (REMIT), official development assistance (ODA), international trade (TRADE), domestic credit to the private sector (CREDIT), and public debt (DEBT), on the three pillars of sustainability (economic, environmental, and social).

2.2. Effects of Sustainable Development Financing Resources on Sustainability

2.2.1. The Impact of Foreign Direct Investment (FDI) on Sustainable Development

Due to the evolution of foreign capital flows worldwide, FDI flows increased by 9% in 2013; moreover, predictions for the future years are positive. In fact, the experts of the United Nations Conference on Trade and Development (UNCTAD) anticipate that foreign direct investments are the main prospect for attaining sustainable development goals (UNCTAD, 2014). There is a shared consensus that FDI is an essential factor for a country’s development, as recently it has begun to be seen as an essential source for sustainable development. In this vein, [5] supported the view that FDI supports economic growth in the targeted countries by reason of the augmented rate of capital formation. On other hand, [6] added that FDI indirectly promotes human capital growth, technological transfers, and increases competition. Recently, [7] have studied the link between the FDI inflows and economic growth for 17 countries over the 1990–2012 period, using a ‘growth model’ framework and simultaneous equation models estimated by the generalized method of moments (GMM). Their findings showed that there is a bidirectional causal relationship between the FDI inflows and economic growth. Moreover, various studies, namely those of [7,8,9,10,11], have studied this relationship. In fact, most scholars have argued that FDI positively affects the economic growth in both developed and developing countries.

Although a good number of researchers have hypothesized the positive linkage between FDI and economic growth, countless researchers have channeled their focus on the relationship between sectoral decomposition and FDI. In that respect, [12] carried out an empirical analysis using cross-section data for 47 countries between 1981 and 1999. He states that FDI can deliver great benefits to the host countries, but such advantages can vary according to the primary, manufacturing, and services sectors. Ref. [13] investigated the role of the sector-specific FDI in economic growth. The results show that for China and Vietnam, FDI has a positive and significant effect on economic growth. These effects are observed directly and indirectly via the interaction with labor in those sectors. Furthermore, [13] concluded that those results were different across economic sectors with almost all of the beneficial effects restricted to the industrial sector. Along the same lines, [14] analyzed the relationship between the different sector-level foreign direct investment (FDI) inflows and economic growth in the host country. The study covered the period from 1987 to 1997 for data from 12 Asian economies. The findings yielded that the FDI in the manufacturing sector exerts a significant and positive effect on economic growth in the host economies. However, the FDI inflows in the non-manufacturing sectors do not have a significant effect on enhancing economic growth. Ref. [14] added that, without the decomposition of the total FDI inflows, the impact of FDI on the host country’s economic growth is probably undervalued in the previous studies.

Furthermore, FDI may have an effect on greenhouse gas emissions. In this case, the results of several studies (inter alia, [15,16,17]) showed mixed results. However, if we consider the fact that in some countries more than 40% of the FDI goes to industry, there will be an effect on the level of the greenhouse gas emissions. Indeed, various companies attach great importance to the increase in their commerce to the detriment of energy rationalization. In fact, in recent years, the focus has been on the adjustment of FDI to clean energy projects, since its efficiency has a better environmental impact. Therefore, the introduction of new technologies has had a good effect on the location preferences of multinational enterprises (MNEs) [18]. As a consequence, the FDI enterprises that use new technologies and encourage innovations, reach a better level of efficiency, and contribute to the creation of a low carbon economy [19]. This strategy is a big step forward, since the majority of companies focus especially on improving their business to the detriment of environmental quality. As the central drive of FDI, multinational enterprises (MNEs), through their operation, can modify the economic environment of the host countries. Ref. [20] pointed out that suitable policies may have positively affected FDI and sustainability problems, if these were addressed for each particular economic activity. Additionally, [21] emphasized that MNEs stimulate the environmentally friendly practices, particularly in countries with weak regulations in this field.

In fact, the theoretical link between the FDI and human development can be revealed from the welfare and economic growth literature. Sen’s work [22,23,24] bearing on welfare economics stressed the FDI’s role in improving remarkable modifications and generally stimulating the quality of life of an individual. In fact, [22,25] noted that “while economic analyses have often concentrated on incomes and commodities to judge a person’s advantage, misery and deprivation, there is a need to shift attention to things that people have reason to value intrinsically”. Therefore, FDI is an important factor in individual wellbeing. In the same line, [26] emphasized the fact that FDI plays an important role in decreasing the unemployment rate by creating jobs and opportunities for host nationals is well known. Besides, FDI acts as a channel of technology transmission from more developed to less developed zones. Hence, the benefits that accrue to host countries are quite substantial. In this context, [27] examined the global distribution of FDI and found that Europe and Central Asia recorded the highest dollar inflows, while the Middle East and North Africa faced a decline in the dollar FDI. Therefore, comparing the countries by per income category revealed that the high-income countries recorded the most important inflow of investments in dollar terms, whereas the low-income ones made the greatest progress in attracting FDI. This discrimination in the development trends of FDI may affect the development process of many countries. On the other hand, several previous studies, such as those of [28,29] posited that many factors contributed to well-being. Moreover, [29] observed that “the importance of global contact and interaction applies to economic relations among others and that there is much evidence that global economy has brought prosperity to many different areas of the globe by overcoming pervasive poverty”. As a matter of fact, foreign investors are considered an important factor in strengthening global relations through direct capital investment and international trade.

2.2.2. Impact of Remittances (REMIT) on Sustainable Development

Ref. [30] reported that, in 2011, remittances were the second biggest financial inflow to the developing countries. In fact, several research works examined the causal link between remittances and some indicators of economic growth. In this framework, [31] analyzed the relationship between remittances and household income. Their results depicted an average remittance rise, at the same time as the income and consumption levels of households rose. On other hand, in the Nigerian economy, [32] focused on the link between the remittances and the per capita income. His finding revealed that the remittances improved the per capita income, which increased households’ consumption. In the same view of [32,33] added that remittances also increase the level of investment. As a result, the growth in consumption and savings promotes an increase in aggregate demand and bank deposits [34,35,36,37].

On the other hand, there is a shared consensus that remittances help reach the sustainable development goals (SDGs), as they can contribute to the achievement of these goals at various levels [38].

Table A1. 17 specific Sustainable Development Goals (SDGs).

Goals Number	Goals
1	No Poverty: End poverty in all its forms everywhere
2	Zero Hunger: End hunger, achieve food security and improve nutrition and promote sustainable agriculture
3	Good Health and Well-being: Ensure healthy lives and promote well-beingat all ages
4	Quality Education: Ensure inclusive and equitable quality education andpromote lifelong learning opportunities for all
5	Gender Equality: Achieve gender equality and empower all women andgirls
6	Clean Water and Sanitation: Ensure availability and sustainablemanagement of water and sanitation for all
7	Affordable and Clean Energy: Ensure access to affordable, reliable, sustainable and modern energy for all
8	Decent Work and Economic Growth: Promote sustained, inclusive andsustainable economic growth, full and productive employment and decent work for all
9	Industry, innovation and infrastructure: Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation.
10	Reduce Inequality: By 2030, reduce to less than 3 per cent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 per cent
11	Sustainable Cities and Communities: Make cities and human settlements inclusive, safe, resilient and sustainable.
12	Responsible Consumption and Production: Ensure sustainable consumption and production patterns
13	Climate Action: Take urgent action to combat climate change and its impacts on the environment
14	Life Below Water: Conserve and sustainably use the oceans, seas and marine resources for sustainable development.
15	Life on Land: Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss
16	Peace and Justice Strong Institutions: Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build efficient, accountable and inclusive institutions at all levels.
17	Partnership to achieve the Goal: Strengthen the means of implementation and revitalize Global Partnership for Sustainable Development.

Source: The General Assembly; UN, 2015.

in Appendix A clearly describes the 17 sustainable development goals (SDGs17).

First, at the household level, the remittances have a positive socioeconomic effect on a family’s well-being. In this sense, remittances deliver value-added financial and non-financial services to remittance families to help with the productive investment of their funds and further build assets for a safer future. Generally, at this level, they allow the achievement of the first to the fifth of the SDGs.

Second, at the community level, remittances support policies and specific actions to stimulate a synchronization between the remittances and financial inclusion, they favor market competition and regulatory reform, and moderate any negative effect ensuing from climate change. For example, remittances play an important role in sustaining social capital with migrant groups as they facilitate the pooling of funds to maintain investment in water and sanitation infrastructure in their place of source. Furthermore, they stimulate remittance families to invest in sustainable agricultural irrigation infrastructure that strongly manages water resources. More specifically, at the community level, the remittances help with the accomplishment of the 6th, 7th, 8th, 10th, 12th, and 13th of the SDGs.

Finally, at the international level, and based on SDGs 17, the remittances ensure that the revitalized Global Partnership for Sustainable Development and the Global Compact on Migration facilitate cooperation across all of the sectors involved in the remittances.

Mostly, at the global level, the remittances support the seventeenth objective of sustainable development. In this context, [39] suggested that the remittances had a principal role in decreasing the number of needy in Guatemala, and they considerably decreased the depth and harshness of impoverishment. On the other hand, the study of [40] on Guerrero and Oaxaca revealed that, in two southern Mexican states with important international emigration and remittance inflows, the part of the poverty-stricken is lowered by two percentage points owing to the remittance income. The authors concluded that this poverty positive impact is comparable in magnitude to that of many government programs in poverty reduction, education, health, and nutrition.

Using data from a 2003 survey, [41] revealed that, in rural Mexico, international remittances account for 15 percent of the per capita household income. They noticed that an increase in international remittances would decrease both the poverty headcount and the poverty gap. In the context of the link between the remittances and environment quality, [42] use the Non-linear NARDL method to verify the long-term asymmetric link between remittances inflow and carbon emissions in China during the period 1980–2014. The obtained empirical results showed that a positive shock in remittances leads to an increase in CO₂ emissions, while a negative shock causes a decrease in CO₂ emissions. The findings also demonstrated the existence of an asymmetric co-integrating relationship between remittances and CO₂ emissions in both the short and long term. However, using data from Nepal, [43] investigated the relationship between foreign aid, economic growth, remittances, and carbon dioxide (CO₂) emissions. In fact, the obtained results, based on an in-depth case study of Nepal, concluded that additional remittances reduce CO₂ emissions. This result indicates that the remittances can lead to an improvement in the environment quality.

2.2.3. Effect of Official Development Assistance (ODA) on Sustainable Development

By the end of the Second World War, in many countries, official development assistance (ODA) was considered to be a crucial factor to reach development goals, including those of sustainable development. For example, the ODA played a crucial role in the alleviation of poverty; besides, its importance for the developing countries was justified in particular by the donor-oriented theory, or the international relations theory, and supplemental theories of foreign aid. Due to their weak economic situation, the international community agreed to the need for increased ODA flows to the developing countries, in the frame of an international partnership for development.

However, in the 1990s, the majority of the developed countries were confronted with a budget deficit. At the same time, the European Union countries were interested in the agreement to reduce fiscal deficits as a constraint on accomplishing monetary integration during the decade. Moreover, the 1990s were considered as a period of a lack of aid, especially in the developed countries. In addition, aid, of necessity, suffered from poor coordination and supervision. The political instability in various countries in the continent constituted a grave setback to the achievement of sustainable development. In this vein, [44] affirmed that there is great evidence highlighting the importance of the ODA in boosting economic growth of the developing countries (see, inter [45,46,47,48]). Besides, the foreign capital inflow through ODA projects supports the economic growth of a beneficiary country which is said to promote appropriate policies in place [49].

By contrast, [50] noted that foreign aid in general, and especially ODA, represent an obstacle for economic growth. For their part, [51] recommended that we should take the heterogeneity of the ODA before studying their impact on economic growth. In fact, this heterogeneity can be the element that causes the impact of the ODA on economic growth in a receiver country. In addition, many studies that focused on the relationship between the ODA and the environmental quality revealed that this relationship can be analyzed by the relationship between the ODA and economic growth [52,53,54,55].

Recently, [56] have proposed panel data to study the effect of the official development assistance (ODA) on the environmental quality (CO2), based on both direct and indirect contexts of Korea from 1993 to 2017. The authors used a modified impact, population, affluence, and technology (IPAT) model and a simultaneous equation framework for the direct and indirect models, respectively. The findings suggested that the ODA has both a direct and an indirect mitigation impact on the CO2 emissions in the recipient countries. By referring to the [57], ODA is the aid, which essentially flows to developing countries. In fact, a transaction is nominated as “aid” if it is managed for supporting the economic development and the welfare of the developing countries as its central goal. In the same line with this, the [58] reported that numerous low-income countries need the resources to finance their development, burdened by unbearable levels of credits, and incapable of competing in the global marketplace, need aid from rich countries. For this reason, the [58] showed that international development aid is considered one of the most operative weapons in the war against poverty.

In fact, some rich countries have been subsidizing their aid to the poor nations to support health, education, and income components. Nevertheless, [59] indicated that, for the past 15 years, development aid has been weak and not properly oriented towards the intended development. In this case, governments must ensure that the aid system is repaired; it is an urgent priority, since the quality and the ODA efficiency to the recipient countries have a direct effect on the success of those development programmers.

2.2.4. Impact of International Trade (TRADE) on Sustainable Development

There is a shared consensus that no sustainable development strategy is reached without accounting for international resource trade and transboundary externalities roles [60,61,62]. The capital approach to sustainability recommends that any country that wants to maintain a sustainable development path needs to keep non-declining comprehensive wealth [58,63]. In this context, international trade plays an important role in the effective distribution of goods and capital. It also contributes to sustainability via productivity enhancement and better welfare for a well-determined level of production. Unlike the neoclassical theory, [64] revealed that capital is internationally mobile. On the other hand, [65] recommended a modification if genuine savings were to comprise the net foreign assets’ holdings. This adjustment partly addresses Daly’s original critique of the neoclassical theory, because trade links strongly influence patterns of resource extraction and consumption.

On the other hand, the participants at the Monterrey conference, such as the heads of states and governments, agreed on the significance of international trade in development and the solid relationship between trade openness, development, and financing. In addition, the July 2015 Summit committed to sustaining a universal, rules-based, open, credible, foreseeable, inclusive, non-discriminatory, and fair multilateral trading system under the World Trade Organization. The Summit stated that international trade is a fundamental factor for the comprehension of economic growth and decrease in poverty, and it assists in the rise of sustainable development [4].

2.2.5. Impact of Domestic Credit to Private Sector (CREDIT) on Sustainable Development

Several authors share the idea that credit growth positively affects the growth rate and generally improves the overall economic efficiency. These authors have sustained the assertion of the existence of a linkage between domestic credit to the private sector and economic growth, even though the literature evidence is mixed. In fact, since the work of [66], several authors have pointed out that financial intermediaries play a key role in promoting technological innovation and economic growth by providing rudimentary services. For his part, [67] emphasized that, since the early 1990s, there has been agreement about the positive effect of financial intermediation on the economy. Moreover, the author noted that the best distribution of capital within an economy promotes economic growth. In the same context, in some studies, namely those of [68,69,70], the authors applied different analysis methods in order to examine this relationship.

Using [71], cointegration test, [72] studied the role of private sector credit on economic growth in Nigeria on quarterly data spanning from 2000: Quarter 1 to 2014, Q4. The obtained results revealed that private sector credit has a positive and significant effect on the output; however, the increased prime lending rate reduces economic growth. In addition, this study shows that the commitment of the Central Bank of Nigeria (CBN) to the gradual decrease in the interest rates is fundamental for the country’s growth goals.

Other studies focus on the links between domestic credit to the private sector and CO2 emissions. For example, [73] tried to test the effect of financial development on carbon dioxide emissions in Pakistan (1988–2011) by using an augmented VAR model. As a result, it was found that financial development improves the environmental quality. In the same line, [74] used the ARDL approach in order to examine the long-term relationship between the environmental degradation and a set of economic and financial variables in the United Arab Emirates over the 1975–2013 period. The findings indicated that there is a mitigation in the environmental degradation by reducing the CO2 emissions in the long term. It added that the financial variables, especially the domestic credit to the private sector, affect CO2 emissions. In agreement with this, [75] found, via two dissimilar investigations (South Africa and Malaysia), that private sector credit plays an important role in reducing the CO2 emissions.

The objective of other various empirical studies was to study the relationship between domestic credit to the private sector and poverty. In fact, most of these studies showed a positive effect of the financial sector development on poverty reduction [76,77], while others revealed that the financial sector growth leads to an increase in the level of poverty [78]. In addition, several works found a strong, unidirectional causality on poverty reduction running from the financial sector [79,80]. However, many other empirical analyses found a unidirectional causality effect on poverty reduction from the financial sector development [81,82], and a bidirectional impact between the financial sector and poverty alleviation [76,77]. For their part, [83] found no connection between the financial sector development and poverty reduction.

2.2.6. Impact of External Debt (DEPT) on Sustainable Development

The act of borrowing is the principal source of debt. According to [84], debt is defined as the resource or money in use in an organization, which is not added by its owner and does not in any other way belong to them. In this context, the Addis Ababa Action Plan emphasized that managing and restructuring public debt is an essential act. Therefore, public debt is an important way to encounter the financing of necessities and invite international stakeholders to give debtor countries the necessary technical support in their debt management and risk reduction program. Ref. [38] pointed out that sovereign borrowing permits government finance to play a counter-cyclical role over economic cycles. Since the Monterrey Consensus, the improvement of macroeconomic and public resource management has led to a considerable drop in the weakness of several countries to sovereign debt distress, whereas various countries persist in being vulnerable to debt crises. Thus, external debt release plays a fundamental role in delivering resources that can then be engaged in activities consistent with achieving sustainable growth and development [38]. The September 2015 Summit called for support for the developing countries in achieving long-term debt sustainability through harmonized policies purposing the promotion of financing, assistance, and restructuring of debt.

Ref. [85] examined the effect of external debt on sustainable economic growth and development in Nigeria. They showed that debt is a key factor in sustaining economic growth. They added that debt should be capable of being serviced. In fact, pre 2000, Nigeria’s debt was the main barrier to the revitalization of its shattered economy, as well as the mitigation of debilitating poverty, because it did not have the capability of servicing it. Then, the inflow of foreign resources essential to stimulate investment, growth, and jobs stop. The authors added that the incapacity of any owing country to service its debt obligation represents a reputational risk and an impediment to obtaining new loans, since little or no confidence will be placed on the capacity to repay. This situation also undermines the efforts made to obtain substantive debt assistance over the medium term with a remarkable growth in interest rates, arrears, and other penalties. In response to the instability of the economic and political context, each country must ensure the best arrangements for debt payment. In fact, debt can be creative only if well oriented, to make the rate of return higher than the cost of debt servicing. Similarly, [3] noted that public borrowing is the principal instrument for financing investment and a key of achieving the sustainability objectives.

3. Econometric Methodology and Data

3.1. Data: Source and Description

The empirical study in this research considers annual data from 2002 to 2018 for 24 developing countries, namely, Albania, Bangladesh, Belarus, Bolivia, Brazil, Cambodia, China, Costa Rica, Cote d’Ivoire, Ecuador, Egypt, El Salvador, Ghana, Honduras, Nigeria, Peru, Philippines, South Africa, Sri Lanka, Thailand, Tunisia, Turkey, Venezuela, and Vietnam. The selection of the period of study and the sample depends upon the accessibility of data, which are in constant U.S. dollars and obtained from the World Development Indicators. In fact, a detailed definition of the variables is presented in

Table 1. Definitions of the Variables.

Variables	Measurement Units	Definitions	Source
Gross Domestic Product (GDP)	As measured by the GDP per capita	“GDP is the final value of the goods and services produced within the geographic boundaries of a country during a specified period of time, normally a year. GDP growth rate is an important indicator of the economic performance of a country”. The Economic Times, 18 April 2022	WDI
CO2 emissions (CO2)	Is measured by the metric tons per capita	“Carbon dioxide (CO2) is a colourless, odourless and non-poisonous gas formed by combustion of carbon and in the respiration of living organisms and is considered a greenhouse gas. Emission means the release of greenhouse gases and/or their precursors into the atmosphere over a specified area and period of time”. OECD Glossary of statistical Terms, 1992	WDI
Human Development Index (HDI)	Is measured by three main criteria: gross domestic product (GDP) per capita, life expectancy, and the level of knowledge/education.	“The Human Development Index (HDI) is a composite statistical index used to assess the rate of human development in a country”. The Economic Times, 18 April 2022	UNDP
Foreign Direct Investments (FDI)	Foreign direct investment, net inflow (% of GDP)	“FDI is an investment made by a firm or individual in one country into business interests located in another country”. Economic Development and Revitalization	WDI
Remittances (REMIT)	As measured by remittances received (% of GDP)	“Remittances are largely personal transactions from migrants to their friends and families. They tend to be well-targeted to the needs of their recipients”. United Nations Development Programme	WDI
Official Development Assistance (ODA)	As measured by Net ODA received (% of GNI)	“(ODA) is defined as government aid designed to promote the economic development and welfare of developing countries. Loans and credits for military purposes are excluded”. OECD iLibrary	WDI
Trade (TRADE)	As measured by % of GDP	“Trade involves the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties”. Investopedia, 2021	WDI
Domestic credit to the private sector (CREDIT)	As measured by % of GDP	“CREDIT refers to financial resources provided to the private sector, for example through loans, purchases of non-equity securities, and trade credits and other accounts receivable, that establish a claim for repayment”. Trading Economics, 2022	WDI
External debt (DEPT)	Stocks of external debt, long-term (DOD, current US $) As measured by % of GDP	“DEPT is debt owed to nonresidents repayable in currency, goods, or services”. IGI Global, 2021	WDI

Notes: WDI indicates the World Development Indicators; UNDP is the United Nations Development Program.

.

Table 2. Descriptive statistics.

Statistics	GDP	HDI	CO2	FDI	REMIT	ODA	TRADE	CREDIT	DEBT
Mean	3.58699	6.9647	2.313	3.3169	5.0860	1.8260	75.617	48.8004	23.8186
Std. Dev	3.24783	5.7804	2.269	2.7437	5.4466	2.6412	34.561	36.7542	1.31027
Min	−10.5065	0.4890	0.174	−2.498	0.0204	−0.644	22.105	6.31035	20.7315
Max	16.2256	33.473	9.979	14.257	21.802	16.342	200.38	160.124	27.2300
Skewness	−0.19592	2.0251	1.618	1.3626	1.3309	2.2832	0.8438	1.42342	0.29716
Kurtosis	5.29677	7.6754	4.861	4.7597	4.0436	8.8366	3.2287	4.20183	2.74792
JB	80.0733	564.39	205.7	155.22	120.57	810.05	42.785	140.847	6.14718
p-value JB	0.000 ***	0.000 ***	0.002 ***	0.000 ***	0.000 ***	0.000 ***	0.001 ***	0.004 ***	0.046 *
Obs	354	354	354	354	354	354	354	354	354

Notes: Std. Dev = Standard Deviation; Min = Minimum; Max = Maximum; JB = Jarque-Bera; Obs = Observation; *, and *** denotes significance at 1%, and 10% levels, respectively.

provides summary statistics of the different variables. The results of the descriptive statistics show that all of the variables have a skewness greater than 0 except for the GDP, which indicates a negative skewness value. The positive sign of skewness indicates that the series is skewed to the right. According to the results of kurtosis, the distribution of trade and external debt is approximately mesokurtic (kurtosis values approximately three), while the distribution of the other variables is leptokurtic (kurtosis values greater than three).

After showing that none of the kurtosis and skewness values for the variables satisfy the conditions for normality, we assert that the series is not normally distributed, which confirms the Jarque-Bera test of normality that offers strong evidence to reject the null hypothesis according to which all of the observed series follow a normal distribution.

3.2. Unit Root Test in Panel

In this study, the LLC test [86], the IPS test [87,88], the ADF test ([89], the Augmented Dickey-Fuller), and the PP test [90] are used. The results obtained from those tests are depicted in

Table 3. Panel Unit Root Tests.

Variables	Level			1st Difference			Integ Level
	LLC	IPS	LM	LLC	IPS	LM
GDP	−8.615 **	−6.883 **	−5.528 **	10.625	125.025	−7.870	I(0)
HDI	−3.703 **	−0.512	0.093 **	54.243	31.490	−9.339	I(0)
CO2	−3.539	2.633	0.057	55.183 ***	52.531 ***	−14.610	I(1)
FDI	−5.891 **	−4.269 **	−3.492	82.255	97.793	−5.150 ***	I(0)
REMIT	−0.724	−2.724 **	−4.725 **	74.990	65.406	−7.671	I(0)
ODA	−4.705 **	−3.410	−4.005 ***	89.551 ***	100.145 ***	−7.108 *	I(0)
TRADE	−4.472	−1.412	−0.956	57.777 ***	66.187	−13.559	I(1)
CREDIT	−2.739 ***	1.498	−0.573	51.044	35.449 ***	−6.876	I(1)
LNDEBT	−2.987 **	1.282	−1.198	64.961 ***	46.473 ***	−7.968 ***	I(1)

Notes: *, ** and *** denotes a significance at 1%, 5%, and 10% levels, respectively.

below. Then, the results displayed in Table 3 show that the five variables: GDP, HDI, FDI, REMIT, and ODA are stationary at a risk of 5%. In contrast, the null hypothesis, which confirms the existence of unit root, cannot be rejected for the variables CO2, TRADE, CREDIT, and LNDEBT at the level of risk of 5% because all of the p-values of these variables are superior to 0.05. However, these last variables are stationary in first difference so there are I(1) processes. Therefore, we can conclude that the variables used in our model are a mixed order of integration (I(0) and I(1)).

Consequently, we will use the Autoregressive Distributed Lag (ARDL) bounds testing approach (ARDL) in our estimation. The ARDL has been employed in this investigation to analyze the effects of sustainable development financing resources (FDI, PR, ODA, TRADE, CREDIT, and LNDEBT) on the pillars of sustainable development in 24 developing countries. The ARDL is more suitable for the current study because, unlike other cointegration techniques, it does not impose a restrictive assumption that all of the study variables should be integrated of the same order. In addition, it has other important features developed by [91].

3.3. Panel Cointegration Tests

In an autoregressive distributed lag (ARDL) system, it is essential to study the stationary relationship between the variables. The ARDL was firstly employed by [92] with the characteristics of not requiring all of the variables to be stationary at I(0) or I(1). Although the spurious regression is associated with non-stationary data, the ARDL model tackles the long-term association between the variables, which are not stationary. Dealing with variables in different orders I(0) or I(1) or both, this approach carries the best solution. The main benefit of this process is in its identification of co-integrating vectors where there are multiple co-integrating vectors [93]. In this context, as with [94,95,96], we employ a panel cointegration test to examine whether the variables are cointegrated. In the first time, we use the LM-based panel cointegration tests established by [94], which test for cross-sectional dependence and heterogeneity. For a second time, we use the heterogeneous panel cointegration test developed by [95,96] to study the long term relationship between the variables in the developing countries. The results obtained from these three tests are depicted in

Table 4. Cointegration test.

	Model 1		Model 2		Model 3
Test	t-Statistic	p-Value	t-Statistic	p-Value	t-Statistic	p-Value
Kao ADF	−2.926 *	0.0035	−1.7905 **	0.0476	−4.4401 *	0.000
Pedroni ADF	−12.455 ***	0.0000	−12.244 ***	0.0017	−12.718 ***	0.000
Westerlund	−2.506 *	0.000	−2.416 *	0.007	−2.612 *	0.001

Notes: *, ** and *** denotes significance at 1%, 5%, and 10% levels, respectively.

, where the statistic of Kao, Pedroni and Westerlund indicates that the null hypothesis of no cointegration is rejected at 1% significance level.

3.4. Presentation of the Model

The principal aim of this research is to check if the resources of sustainable development, such as foreign direct investment (FDI), remittances (REMIT), official development assistance (ODA), international trade (TRADE), domestic credit to the private sector (CREDIT), and external debt (DEPT) can help to achieve the sustainability goals for the developing countries, using data over the period 2002–2018.

As for [7,97], among others, included foreign direct investment (FDI) in their empirical models to examine the effects on economic growth. However, other researchers, such as [17,98], used FDI in their study to analyze its impact on the greenhouse gas emissions. On the other hand, [27] used FDI in their study to determine its role in human development. In addition, several authors include the remittances (REMIT) in their empirical models to examine their impacts on GDP per capita, (see [27,31,32] among others), on the environment quality (see, inter alia, [42,99]), on human development (see [100,101]). Ref. [51] used official development assistance (ODA) in their study to analyze its effect on economic growth. For their part, [56] included this variable in their model to determine its impact on CO2 emissions. Furthermore, [102] added ODA in his empirical research in order to examine its impact on human and educational development. Moreover, many empirical studies (for instance, those of [103,104]) used international trade (TRADE) to examine its effect on economic growth. However, other researches (for example, [7,105]) included TRADE in their model to analyze its impacts on the environmental quality. TRADE was also integrated into the study model of [106] to determine its effect on human development. Additionally, several researchers included the domestic credit to the private sector (CREDIT) in their empirical models to examine their effects on economic growth [70,72]. Meanwhile other authors [73,74] concentrate on the impacts of this variable on the CO2 emissions. Then, the (CREDIT) effects on the human development are also analyzed by many empirical studies, such as that of [74,99,107,108,109] among others, and included the external debt variable in their empirical models to examine their impacts on economic growth. In addition, as for ([110], they used this variable in their model to study its effect on the carbon dioxide emissions (CO₂) in the case of China, whereas [111] included the external debt variable in his empirical study in order to analyze its impact on human development.

In fact, the general specification of the model we try to estimate can be presented as follows:

$${\mathrm{GDP}}_{\mathrm{i},\mathrm{t}}= {\mathsf{\alpha }}_{\mathrm{i}}+ {\mathsf{\beta }}_1{\mathrm{FDI}}_{\mathrm{i},\mathrm{t}}+ {\mathsf{\beta }}_2{\mathrm{REMIT}}_{\mathrm{i},\mathrm{t}}+ {\mathsf{\beta }}_3{\mathrm{ODA}}_{\mathrm{i},\mathrm{t}}+ {\mathsf{\beta }}_4{\mathrm{TRADE}}_{\mathrm{i},\mathrm{t}}+ {\mathsf{\beta }}_5{\mathrm{CREDIT}}_{\mathrm{i},\mathrm{t}}+{\mathsf{\beta }}_6{\mathrm{DEBT}}_{\mathrm{i},\mathrm{t}}+\mathsf{\epsilon }$$

(1)

$${\mathrm{CO}2}_{\mathrm{i},\mathrm{t}}= {\mathsf{\alpha }}_{\mathrm{i}}+ {\mathsf{\beta }}_1{\mathrm{FDI}}_{\mathrm{i},\mathrm{t}}+ {\mathsf{\beta }}_2{\mathrm{REMIT}}_{\mathrm{i},\mathrm{t}}+ {\mathsf{\beta }}_3{\mathrm{ODA}}_{\mathrm{i},\mathrm{t}}+ {\mathsf{\beta }}_4{\mathrm{TRADE}}_{\mathrm{i},\mathrm{t}}+ {\mathsf{\beta }}_5{\mathrm{CREDIT}}_{\mathrm{i},\mathrm{t}}+{\mathsf{\beta }}_6{\mathrm{DEBT}}_{\mathrm{i},\mathrm{t}}+\mathsf{\epsilon }$$

(2)

$${\mathrm{HDI}}_{\mathrm{i},\mathrm{t}}= {\mathsf{\alpha }}_{\mathrm{i}}+ {\mathsf{\beta }}_1{\mathrm{FDI}}_{\mathrm{i},\mathrm{t}}+ {\mathsf{\beta }}_2{\mathrm{REMIT}}_{\mathrm{i},\mathrm{t}}+ {\mathsf{\beta }}_3{\mathrm{ODA}}_{\mathrm{i},\mathrm{t}}+ {\mathsf{\beta }}_4{\mathrm{TRADE}}_{\mathrm{i},\mathrm{t}}+ {\mathsf{\beta }}_5{\mathrm{CREDIT}}_{\mathrm{i},\mathrm{t}}+{\mathsf{\beta }}_6{\mathrm{DEBT}}_{\mathrm{i},\mathrm{t}}+\mathsf{\epsilon }$$

(3)

For i = 1…..N; t = 2002 to 2018, where the GDP refers to the real gross domestic product; the CO2 emissions as a measurement of the environmental pollution then; HDI is the human development indicator. FDI is the foreign direct investment; REMIT is the remittances; ODA is the official development assistance; TRADE is the trade; CREDIT is the domestic credit to the private sector; and DEPT is the external debt. The parameter α_i is a fixed-effect parameter while β₁, β₂, β₃, β₄, β₅, and β₆ are the slope parameters. ε_it are the estimated residuals that represent deviations from the long-term relationship.

4. Empirical Results and Discussions

After satisfying all of the conditions for the ARDL modeling, the long-term as well as short-term estimates have been calculated along with their significance and t-statistics to analyze the effects of FDI, REMIT, ODA, TRADE, CREDIT, and DEBT on GDP (model1), on CO2 (model2), and on HDI (model3) and are shown in

Table 5. Short-term estimation.

	Model 1: Dependent Variable: GDP
Vbles	Coefficient	Standard Deviation	T-Statistic	Significance
D(FDI)	0.369	0.005	3.112	0.113
D(REMIT)	−0.640	0.042	−2.015	0.786
D(ODA)	−21.167	0.001	4.112	0.158
D(TRADE)	0.155	0.022	0.236	0.001 ***
D(CREDIT)	0.083	0.005	−5.378	0.414
D(DEBT)	1.810	0.007	1.258	0.229
C	32.501	0.080	1.357	0.000 ***
COINTEQ01	−0.714	0.021	0.018	0.000 ***
R-squared 86.786
F-stat 7.567
DW Statistics 2.013
Model 2: Dependent Variable: CO2
Vbles	Coefficient	Standard Deviation	T-Statistic	Significance
D(FDI)	−0.098	0.001	2.168	0.030 **
D(REMIT)	−0.935	0.081	−3.287	0.416
D(ODA)	−0.905	0.003	4.257	0.437
D(TRADE)	−0.004	0.052	0.217	0.770
D(CREDIT)	0.025	0.002	−0.214	0.504
D(LNDEBT)	−0.397	0.006	3.175	0.579
C	2.767	0.052	−2.578	0.000 ***
COINTEQ01	−0.228	0.036	0.321	0.000 ***
R-squared 85.895
F-stat 7.368
DW Statistics 2.107
Model 3: Dependent Variable: HDI
Vbles	Coefficient	Standard Deviation	T-Statistic	Significance
D(FDI)	−0.091	0.025	7.015	0.331
D(REMIT)	1.407	0.008	−0.624	0.510
D(ODA)	−5.709	0.061	−8.267	0.400
D(TRADE)	−0.019	0.005	5.024	0.121
D(CREDIT)	−0.038	0.097	0.027	0.208
D(LNDEBT)	0.520	0.005	−2.351	0.388
C	2.411	0.061	0.024	0.002 ***
COINTEQ01	−0.159	0.034	2.157	0.004 ***
R-squared 87.998
F-stat 7.108
DW Statistics 2.004

Notes: ** and *** indicate a correlation significance at 5% and 10% levels, respectively.

and

Table 6. Long-term estimation.

	Model 1: Dependent Variable: GDP
Vbles	Coefficient	Standard Deviation	T-Statistic	Significance
FDI	0.184	0.215	1.201	0.034 **
REMIT	−0.161	1.092	−4.621	0.023 **
ODA	−0.442	0.302	3.312	0.081 ***
TRADE	0.040	0.604	−0.902	0.028 **
CREDIT	0.238	0.231	2.214	0.073 ***
DEBT	−1.793	1.701	−0.802	0.064 ***
C	24.421	0.032	1.708	0.032
Model 2: Dependent Variable: CO2
Vbles	Coefficient	Standard Deviation	T-Statistic	Significance
FDI	0.012	0.620	−1.851	0.729
REMIT	−0.488	0.401	−0.271	0.057 ***
ODA	−0.921	1.091	2.032	0.099 ***
TRADE	−0.008	1.031	−0.172	0.438
CREDIT	−0.028	0.621	4.721	0.069 ***
DEBT	−0.141	0.817	2.025	0.537
C	9.625	1.015	2.581	0.084 ***
Model 3: Dependent Variable: HDI
Vbles	Coefficient	Standard Deviation	T-Statistic	Significance
FDI	0.250	2.041	2.651	0.026 **
REMIT	−0.075	0.311	−1.235	0.003 *
ODA	−0.406	1.692	8.027	0.074 ***
TRADE	−0.053	0.821	−4.420	0.036 **
CREDIT	0.080	1.709	0.168	0.061 ***
DEBT	−0.319	1.957	−5.182	0.078 ***
C	2.411	1.487	0.194	0.088 ***

Notes: *, ** and *** indicate a correlation significance at 1%, 5% and 10% levels, respectively.

. It is clear from Table 5 that only trade openness boosts economic growth in the short term at a 10% level. Similarly, only FDI can reduce the environmental pollution in the short term at a 5% level. In fact, all of the other variables do not have an impact on the economic growth, on the environmental quality, and on human development in the short term.

Moreover, the findings revealed that foreign direct investment has a positive and statistically significant effect on economic growth and human development at the level of 5% in the long term. Therefore, the magnitudes of 0.184 and 0.25 imply that a 5% rise in foreign direct investment increases economic growth and human development in the developing countries by 0.184% and 0.25%, respectively. This mean that foreign direct investment in the developing countries positively contributes to economic growth and human development. Thus, we can conclude that there is a long-term equilibrium link between foreign direct investment, economic growth, and between foreign direct investment and human development, which means that FDI, GDP, and HDI evolve together in the long term. In fact, these results are in line with most of the previous studies mentioned above. More specifically, they are in line with those of some studies, such as those of [27,112,113] who show that FDI has a positive effect on human development. However, our study shows that FDI has an insignificant positive impact on the CO2 emissions, which implies that foreign direct investment and environmental quality do not have a long-term relationship in the case of our study.

Another important finding is that a 5% rise in personal remittances leads to a 0.161% fall in the GDP per capita, meaning that personal remittances inhibit economic growth in the developing countries of our research case. Similarly, we found that the personal remittances negatively correlated with human development at 1% level. Hence, the coefficient magnitude of −0.488 implies that a 10% increase in personal remittances leads to a decrease of 0.5 in the per capita CO2 emissions, indicating that an increase in personal remittances leads to a decrease in environmental degradation. This means that the remittances can reduce pollution, indicating that they play a significant role in promoting the environmental performance in the long term.

Moreover, official development assistance has a negative and statistically significant effect on economic growth, carbon emissions, and human development at the 10% level. The coefficient magnitude of −0.442; −0.921; −0.406 implies that a 10% increase in official development assistance use leads to a decrease of 0.44%; 0.9%; and 0.4% in economic growth, CO2 emissions, and human development, respectively. These results are in contrast to those of [114] who studied the effect of ODA on economic growth in Iran, but in line with the results of [56] who found a reduction impact of ODA on CO2 emissions in the developing countries.

Then, the long-term coefficients specify that trade exhibits a positive and significant effect on economic growth but a negative and significant effect on human development, and a negative but insignificant impact on CO2 emissions. In fact, the magnitudes of 0.040 and −0.053 indicate that a 5% increase in trade increases economic growth by 0.04% and reduces human development by 0.053%. Our results then confirm those of [56], where trade constitutes an important variable to stimulate economic growth. Contrary to our results, [115] found that increases in trade are positively related to future growth in the social welfare in a panel data framework.

Therefore, we notice that, for the three models, there is a significant effect of credit on economic growth, on the environmental quality, and human development at the level of 10%. The coefficient magnitudes of −0.028 and 0.080 suggest that a 10% increase in total credit to the private sector leads to a 0.03% decrease in per capita CO2 emissions and a 0.08% increase in human development, showing the important roles played by credit in achieving environmental quality and human development in the case of our study. Therefore, there is a need to further increase the level of credit to attain lower CO2 emissions and support social welfare. This result supports the view of [116] in 17 African countries. The link between credit to the private sector and economic growth indicates that credit boosts economic growth in the long term. This result is in line with the findings of [117,118,119].

Moreover, from the results of models 1 and 3, external debt has a negative and statistically significant effect on both the GDP and on the HDI at a 10% level. Then, the magnitudes of −1.793 and −0.319 demonstrate that a 10% increase in external debt leads to a decrease of 1.8% and 0.32% in economic growth and human development, respectively, which implies that an increase in external debt leads to a decrease in economic growth and human development in the long term in the developing countries. The negative impact of external debt on economic growth was also observed in 24 developing countries from 1976 to 2003, by [120,121] in the case of Pakistan, and [122] for the sub-Saharan African countries. Nevertheless, these results are in contrast with those obtained by [123,124]. Moreover, [125] confirmed the negative relationships between external debt and human development in developing countries, as informed by [126]. The findings also showed that external debt does not affect environmental quality.

5. Diagnostics Tests

Table 7. Results of statistical and diagnostic tests for ARDL Model.

	Model 1		Model 2		Model 3
Test	F-Statistics	Prob	F-Statistics	Prob	F-Statistics	Prob
Serial Correlation	0.0706	0.925	0.0605	0.969	0.0704	0.934
Heteroscedasticity	0.387	0.981	0.331	0.974	0.314	0.925
Normality	2.852	0.483	2.547	0.521	2.702	0.361
Ramsey RESE test	0.298	0.264	0.307	0.352	0.415	0.251

validates the reliability of the three models. In fact, based on the White test, the results affirm that the variables are homoscedastic; however, the Jarque-Bera test shows that the variables are normally distributed. The CUSUM test suggests the stability of the models used in the study. The probability value of the Ramsey RESET test supports the CUSUM test, and suggests the stability of the models studied in our investigation.

To simplify the results of long-term estimation, we have summarized them in Figure 1 below:

6. Conclusions and Policy Implications

The objective of this study is to examine if the resources of sustainable development make it possible to achieve the objectives of this development for 24 developing countries over the 2002–2018 period, using the Autoregressive Distributed Lag (ARDL) model.

For more than 25 years, the international community has thought about financing for development, when the Monterrey Consensus of the International Conference on Financing for Development (Monterrey, Mexico, March 2002) recommended rallying and enhancing the efficient use of financial resources to achieve the internationally agreed Millennium Development Goals. In this case, in 2015, a new Development Agenda was considered, based on Development Finance. Therefore, the proficient exploitation of old and innovative finance resources in economic, social, and human development has been considered a universal first urgency. Within this context, the main objective of this study is to examine whether the development resources enable the goals of sustainability to be met. In fact, we studied if FDI, REMIT, ODA, TRADE, CREDIT, and DEPT led to economic growth, reduced CO2 emissions, and improved human development in the case of 24 developing countries over the 2002–2018 period, using the Autoregressive Distributed Lag (ARDL) model.

The following are the principal results obtained from the long-term estimates:

(i)

Theoretically, our analysis states the efficiency of development assistance, external debt, and remittances in reducing carbon emissions. However, our empirical study shows the failure of those variables in increasing economic growth and supporting human development in the case of the developing countries;

(ii)

Foreign direct investment can simultaneously achieve economic growth and advance social development, but it leads to environmental degradation in the developing countries. Trade openness plays a central role in promoting economic growth in both the short- and long-term; nevertheless, it inhibits human development. Both foreign direct investment and trade have no influence on the environmental quality;

(iii)

Contrary to our a priori expectation, domestic credit to the private sector does not significantly contribute to economic growth, but it produces a significant impact on human development. Therefore, an increase in the domestic credit to the private sector promotes human development. Although, theoretically, financial development, measured by using domestic credit to the private sector could improve the environmental performance by decreasing carbon emissions via technological development, and research and development (R&D), our study shows that domestic credit to the private sector leads to an increase in carbon dioxide emissions. Credit to the private sector through energy consumption, economic growth, and technological progress leads to higher environmental damage by contributing to an increase in carbon emissions. In effect, it helps households and firms to have funding that, respectively, permits households to buy equipment that demands energy, and firms to improve their current activities and acquire energy-demanding machines and equipment that could contribute to the growth of carbon emissions.

From the above analysis, this study has several policy implications: First, the government must control the ODA for the developing countries to achieve the development targets. Then, ODA flows should be complemented by reinforced mechanisms of international tax cooperation to address the problem of illegal capital flows. Therefore, climate financing should be distinct from, and added to, regular ODA.

The developing countries are hurt by severe vulnerabilities to climate change and other environmental shocks. In fact, to achieve sustainable development goals, those countries need to have better access to Official Development Assistance (ODA) and alternative sources of financing. In this case, a renewed global partnership for the development to mobilize unprecedented resources and political engagement is of serious importance.

An appropriate policy to attract new and more effective financial (and non-financial) resources oriented towards the developing countries will be needed for making sustainability a reality. Similarly, it is important to closely analyze the consequences of the external debt effect on the pillars of sustainable development. Even then, proper debt mitigation is crucial, in that it addresses not only instant liquidity stresses but also has the possibility of resolving the difficulties of structural indebtedness and long-term debt sustainability. Effective debt management is always in demand because it will not only deliver foreign capital for trade improvement but also provide managerial knowledge, technical expertise, as well as access to the international market for the mobilization of a nation’s human and material resources for economic growth.

However, if external debt is accumulated beyond a certain limit (the so-called debt overhang hypothesis) it will lead to a decline in economic growth by dampening investment, thus leaving the developing countries facing serious debt problem. Additionally, with descending revisions of investment plans, several developing countries experienced rising foreign currency outflows from transnational enterprise associates, due to an increase in royalty payments, dividends, and profit remittances transferred to head offices struggling with dropping revenues. Consequently, this situation draws attention by asking the question of the “political will”. Indeed, political responsibility has a fundamental role in effective support for the remittance process in those countries.

Second, the policymakers must put in place suitable inducement instruments for trade. More specifically, the export and import of goods need to be stimulated by giving tax encouragements, rebates, and other subvention policies. Moreover, the import of those items of consumer goods that are being produced by domestic producers must be discouraged to protect our employment and production, which will ultimately affect human development in the developing countries.

Third, in the case of pollution control, the government should take severe measures against extremely polluting enterprises, and impose carbon taxes on them. As a result, those enterprises will further participate in clean and renewable energy by investing more in this area. This leads to greatly decreased carbon dioxide emissions. Moreover, the government needs to develop the Green Credit System, continue to expand the field of this credit type, further progress the credit management process, implement tax motivations for energy conservation and decreases in emissions, seriously explore the securitization of green credit assets, and reduce idle assets to sustain environmental quality.

Finally, in the progressively globalizing inter-reliant world economy, a universal strategy for the unified global and general challenges of financing for sustainable development, which takes into account the needs of different generations in all parts of the globe, is necessary. Such an approach would open up chances for all and support the guarantee that resources are generated and used efficiently and that solid and responsible organizations are recognized at different levels. To that objective, cooperative and consistent action is wanted in each interconnected domain, integrating all of the participants in an active partnership (UN, 2003).

Briefly, this study seems important insofar as it addresses a very important subject in the context of sustainable development, namely the resources for financing sustainability. However, the role of governance is ignored in this study. In this case, it is recommended to future studies to take into account the role of governance in achieving the objectives of sustainable development.