Algorithmic insights: How FDI sources, digital financial inclusion, and geopolitics collide in Pakistan's...

The environmental effect of foreign direct investment is a much-discussed topic. Nevertheless, how foreign direct investment's country of origin can affect is a topic of salience for international business managers, policymakers, and researchers. Thus, this study focuses on environmental performance of disaggregated foreign direct investment originating from high-income, middle-income countries, and China in Pakistan from 1995 to 2024. The research assesses (1) the direct impacts of disaggregated foreign direct investment on Pakistan's environmental performance, (2) the mediating role of digital financial inclusion, and (3) time-varying and heterogenous effects of geopolitical risks and the China-Pakistan Economic Corridor (CPEC). The empirical framework employed novel machine learning techniques and constructed composite indices from country-specific indicators to evaluate environmental performance and digital financial inclusion. The results show heterogeneous environmental effects of disaggregated foreign direct investment. Chinese investment directly intensified environmental stress, which is further exacerbated indirectly by digital financial inclusion. Conversely, the high-income and middle-income countries FDI directly mitigate environmental degradation, whereas indirect effects via digital financial inclusion exacerbate it. This indicates that digital financial inclusion predominantly promotes capital inflow towards resource-intensive industries rather than in ecologically sustainable sectors. Temporal and regime-specific analysis demonstrates that the impact of disaggregated foreign direct investment on environment is contingent upon structural and geopolitical factors in Pakistan. Robustness tests using alternative specifications, bootstrapping, and placebo testing confirm the validity of main results. The findings provide comprehensive evaluations of how the origin of foreign investment, digital financial inclusion, and geo-economics jointly impact Pakistan's environmental landscape.