Abstract
There is a rapid increase in inflows of foreign direct investment (FDI) into developing countries such as India. Some researchers argue that FDI has a positive impact on sustainable development in terms of environmental efficiency and brings innovative green technology to the host country. In contrast, others claim that FDI brings considerable pollution to the host country, and their motive is only to yield profit. To address this issue, this paper analyzes environmental efficiency between FDI and domestic firms in India for seven years between 2012 and 2018. The research aims to evaluate the performance of FDI firms in terms of environmental efficiency in India after implementing certain policy regulations, nationally and globally. In this analysis, we use the non-radial metafrontier Malmquist CO2 performance index (NMMCPI) with three decomposition indices: efficiency change index, best practice gap index, and technological gap change index. Our empirical results indicate that domestic firms have performed well in terms of better catch-up and innovation performance. On the other hand, FDI firms only demonstrated higher technology leadership performance, indicating weaker catch-up performance and weaker innovation performance. From the results, we proposed that policymakers should harmonize between the FDI promotion and regulation in its sustainable performance because global companies are not sensitive to the local regulations, and not very proactive in implementing the global standard of eco-friendliness.
Highlights
At present, carbon dioxide (CO2 ) emissions from human activities have increased rapidly due to the rapid industrialization, urbanization, population explosion, and exploitation of natural resources, etc
The structure of the paper is as follows; in Section 2, we present a literature review in the related areas to find out our strategic variables and methodologies; in Section 3, we develop our empirical models to evaluate the environmental efficiency of foreign direct investment (FDI) and domestic firms in India; we discuss our empirical result and its implications in Section 4; in Section 5, we conclude our study by providing some policy implications
Pan et al [25] used the slacks-based measure (SBM)-Data Envelopment Analysis (DEA) model to measure more accurately the energy efficiency of the quality of FDI in China. They found that the quality of FDI had a significant positive effect on energy efficiency in China
Summary
Carbon dioxide (CO2 ) emissions from human activities have increased rapidly due to the rapid industrialization, urbanization, population explosion, and exploitation of natural resources, etc. According to the Mauna Loa Atmospheric Reference Observatory in Hawaii in 2018, CO2 levels reached 411 parts per million, the highest monthly average ever recorded in history [1]. A recent report indicates that countries like China, United States, and India are the major emitters of CO2 in the world. In terms of CO2 output, India has recorded more than half of the increase in global CO2 since 2013 [2]. Foreign direct investment (FDI): In recent decades, we have witnessed a sharp increase in inflows of foreign direct investment (FDI) to developing countries. FDI in India began in 1991 under the Foreign Exchange Management Act (FEMA) with a baseline of USD 1 billion in 1990. India has been one of the most popular destinations preferred for FDI.
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