Environmental Accounting of Financial Development and Foreign Investment: Spatial Analyses of East Asia

Omar Bagais,Haider Mahmood,Maham Furqan

doi:10.3390/su11010013

Abstract

This paper aspires to examine the environmental effects of financial market development (FMD), foreign direct investment (FDI), and trade openness on the CO2 emissions per capita along with the environmental Kuznets curve (EKC) hypothesis in six East Asian countries from 1991–2014. For this purpose, spatial econometrics is applied to consider the spillover effects from neighboring countries. The results of the study corroborate the spillover effects from neighboring countries’ CO2 emissions per capita, FMD, FDI, and trade openness, and the EKC hypothesis is proven true in this region. Local FDI inflows, trade openness, and energy intensity are found to be responsible for local environmental degradation. Local FMD has an insignificant environmental effect, but neighboring countries’ FMD has contributed to the local CO2 emissions per capita. Further, positive (negative) environmental spillover effects are found from neighboring countries’ FDI (trade openness).

Highlights

With the world moving toward making efforts for a greener environment, the discussion about reducing CO2 emissions is inevitably brought up
We investigate the environmental Kuznets curve (EKC) hypothesis in the East Asian countries using the period 1991–2014 along with the impact of foreign direct investment (FDI), financial market development (FMD), trade openness, and energy intensity on the CO2 emissions per capita
Through Lagrange multiplier (LM) and LM robust tests, we found the existence of spatial dependency in our hypothesized model

Summary

Introduction

With the world moving toward making efforts for a greener environment, the discussion about reducing CO2 emissions is inevitably brought up. EKC suggests that with an improvement on the overall economic health of a country, emissions first increase and start to go down with time when the economy gains more economic growth Many studies support this idea on several regional levels, but there is still much space to explore these claims, especially from the perspective of spatial dependency. The role of spatial dependency is something that is scant in the empirical environment literature; a good number of studies have investigated the spatial effects in the provinces or cities of China [1,2,5,6,7,8,21,22,23,24,25,26,27] This analysis is totally absent for a panel of East Asia, and there is a need to incorporate this idea into research. The inferences made from the study may be helpful for policymakers in the East Asia region but may provide a clearer picture of the entire region and may assist in comprehending the scenario from a broader and more inclusive regional angle

Theoretical and Empirical Framework

Methods

Findings

Conclusions and Implications