The purpose of this study is to explore the empirical relationship between foreign direct investment (FDI), population, energy production, and water resources in South Asia. The newly developed approach dynamic common correlated effects (DCCE) by Chudik and Pesaran (Journal of Econometrics 188:393-420, 2015a) for measuring co-integration has been applied in the present study. This procedure provides significant robust outcomes in the presence of cross-sectional dependence among the cross-sectional units. The findings confirmed that earlier models, such as mean group (MG), pooled mean group (PMG), and augmented mean group (AMG), which have been used in the literature for long data, provide misleading results in the presence of cross-sectional dependence among the cross-sectional units. A statistically significant and negative result has been observed between FDI, population, energy production, and water resources in South Asia. The governments of South Asian economies must encourage green FDI initiatives for water management, ensuring water security, securing natural resources for enhancing the sustainable development of regional economies.