Exploring Environmental Kuznets Curve and Pollution Haven Hypothesis in Bangladesh: The Impact of Foreign Direct Investment

Abstract

Bangladesh receives the second-most foreign direct investment in South Asia. Over the past 30 years, Bangladesh's economy has expanded tremendously because of increased investment from several foreign countries. Although it can be beneficial in certain ways including the generation of new jobs, the improvement of infrastructure, and the equalization of economic rewards across the population; foreign direct investment has unintended consequences, such as ecological damage. In light of this, it is worth exploring the effects of foreign direct investment on sustainable development in Bangladesh. Using the most up-to-date annual data between 1990 and 2019, this study investigated the evidence of the Environmental Kuznets Curve and the Pollution Haven Hypothesis in Bangladesh. To assess the effects of economic growth, foreign direct investment, energy use, and trade on carbon dioxide emissions, this research employed the autoregressive distributed lag method. The empirical results indicated that the country has an inverted U-shaped Environmental Kuznets Curve and the adverse impact of foreign direct investment on the environment confirmed the validity of the Pollution Haven Hypothesis in Bangladesh. The results paint a bleak picture, sounding an alarm for policymakers to pay closer attention to the ways in which development leads to increased carbon emissions and how multinational companies operating within the country worsen the situation. That's why it's important to subject foreign investors to stringent environmental regulations. In addition, the nation's economic expansion should be guided by sustainable development goals.