Ecological footprint of FDI inflows and income threshold effect: New results with a new approach to income classification

Abstract

This paper explores the potential income threshold effect on the dynamic relationship between ecological footprint (EF) and foreign direct investment (FDI). We analyze a balanced panel of 82 countries over the period 1980–2016 with a dynamic panel threshold model proposed by Seo and Shin (2016) to study the issue. The empirical result suggests a nonlinear relation between EF and its main determinants in high- or low-income regime measured by real GDP per capita. Evidence suggests a positive persistence of EF in rich countries. FDI inflows satisfy both the pollution haven hypothesis for Consumption EF in low-income countries and pollution halo hypothesis for Production EF in high-income countries; the ecological Kuznets curve hypothesis is verified in low-income countries. The impact of exports on Consumption EF is in line with the ecological unequal exchange theory in that they hurt the poor countries but benefit the rich economies.