Abstract
In this study, the theoretical and empirical effects of foreign investment, openness to trade, urbanization, and economic development on carbon dioxide emission levels (CO2) in Pakistan were examined. Annual time series for 38 years 1970-2018 were utilized. The Auto Regressive Distributed Lag (ARDL) bound test has been used to estimate the model which indicates the presence of cointegration among the variables. Long-run and short-run relationships were observed between Foreign Direct Investment (FDI) and CO2 emission levels revealing that increase in FDI results in increased CO2 emission levels contributing to environmental degradation. This endorses the theory of Pollution Haven Hypothesis (PHH) in the case of Pakistan. To achieve the goal of sustainable economic development, it is imperative to consider the possible negative effects of foreign investment on the environment. The study suggests limiting CO2 emissions by adopting more advanced low carbon technologies to ensure growth and a sustainable environment. Strict implementation of environmental laws for foreign and domestic firms both by defining CO2 emission limits, installation of proper waste management plants, and imposing a pollution tax are crucial steps for the improvement of environmental quality.
Highlights
Environmental pollution, climatic change, and globalwarming are some of the most concerned topics in scientific research
Considering the importance of foreign investment in development, growth, and prosperity, the objective of the current study is to explore if the Foreign Direct Investment (FDI) is a possible major cause of environmental degradation, and if so, ways to design a policy framework that is sustainable for economic development with minimum hazards for the environment
No long run causality was observed in the reverse direction which means that CO2 emission does not Granger-cause economic growth, a unidirectional causality is observed
Summary
Environmental pollution, climatic change, and globalwarming are some of the most concerned topics in scientific research. The IPCC 2018 reported that the effects of global warming have been felt in many parts of the world They are not spread consistently over the globe, with different areas experiencing the impacts unexpectedly and unevenly. The hypothesis explains that Multi-National Corporations (MNCs) relocate the industries which are more pollution intensive in nature to Less Developed Countries (LDCs) with flexible environmental regulations to avoid high environmental costs in terms of environmental taxes This results in increasing pollution level in the host country becoming a pollution haven [7]. Considering the importance of foreign investment in development, growth, and prosperity, the objective of the current study is to explore if the FDI is a possible major cause of environmental degradation, and if so, ways to design a policy framework that is sustainable for economic development with minimum hazards for the environment. This paper contributes to earlier research on foreign investment inflow and its possible harmful effects on carbon emissions to help policy makers to design policies that combat carbon emissions but not at the cost of economic growth
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