Environmentally Friendly Investments and Where to Find Them: Investigating How the Quality and Origins of Manufacturing FDI Influence the Co2 Emissions Intensity in Brazil

Abstract

According to previous studies, Brazil’s rapid growth in recent years was environmentally costly. Amidst many challenges, CO2 emissions intensity (i.e., CO2 per unit of GDP) levels are rising, and the country seems to face technological stagnation. One path towards sustainable development involves the attraction of Foreign Direct Investment (FDI), as FDI inflows are often found to be environmentally friendly. However, to the best of our knowledge, no regional-level research has investigated the effects of FDI on the emissions intensity levels in Brazil. To tackle this issue, this study investigates the effects of FDI in Sao Paulo state’s municipalities, as the region hosts the highest number of multinational companies, and is the richest (i.e., most developed) territory in the country. Specifically, this study investigates the heterogeneous consequences of manufacturing FDI on the environment according to these investments' quality (i.e., technology level) and origins (i.e., institutional background). By employing Sao Paulo’s first municipal-level FDI dataset over the 2010-2016 period, the results suggest that FDI can be environmentally friendly. Still, the results reject the 'one size fits all' approach, and high-technology FDI is particularly advantageous. Moreover, foreign companies from better-developed countries (i.e., strong institutional background) also benefit the environment. All these issues bring relevant implications for the region’s future development.