Economic Growth, Foreign Direct Investment and CO2 Emissions in China: A Panel Granger Causality Analysis

Hongfeng Peng,Liqin Hu,Yanli Li,Xiaoyu Tan

doi:10.3390/su8030233

Abstract

Using a sample of province-level panel data, this paper investigates the Granger causality associations among economic growth (GDP), foreign direct investment (FDI) and CO2 emissions in China. By applying the bootstrap Granger panel causality approach (Kónya, 2006), we consider both cross-sectional dependence and homogeneity of different regions in China. The empirical results support that the causality direction not only works in a single direction either from GDP to FDI (in Yunnan) or from FDI to GDP (in Beijing, Neimenggu, Jilin, Shanxi and Gansu), but it also works in both directions (in Henan). Moreover, we document that GDP is Granger-causing CO2 emissions in Neimenggu, Hubei, Guangxi and Gansu while there is bidirectional causality between these two variables in Shanxi. In the end, we identify the unidirectional causality from FDI to CO2 emissions in Beijing, Henan, Guizhou and Shanxi, and the bidirectional causality between FDI and CO2 emissions in Neimenggu.

Highlights

Recent policymakers and academic scholars have shown increasing interest in the economic growth in China since the recent decades. How is it possible to speed up the economic growth without serious pollution? How can CO2 emissions be reduced in the context of scarce energy? The answers to these questions are crucial for environmental sustainability in the context of economic globalization
Once cross-sectional dependence and heterogeneity exist across the provinces, we employ the bootstrap panel causality test proposed by Kónya [28] which can account for these dynamics
We investigate the Granger causality associations among economic growth, foreign direct investment and CO2 emissions using a sample of 1985–2012 province-level data in China, and taking into account the cross-sectional dependence and heterogeneity across different provinces

Summary

Introduction

Recent policymakers and academic scholars have shown increasing interest in the economic growth in China since the recent decades. How is it possible to speed up the economic growth without serious pollution? We plan to investigate the possibility of Granger causality associations among economic growth (GDP), foreign direct investment (FDI) and CO2 emissions. Some researchers proposed the concept of the environmental Kuznets curve (EKC), which is an inverted U–shape relationship between economic growth and environment quality. This might be taken to suggest future energy

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