FDI, Green Innovation and Environmental Quality Nexus: New Insights from BRICS Economies

Najabat Ali,Khamphe Phoungthong,Shah Abbas,Kuaanan Techato,Joshuva Arockia Dhanraj,Waheed Ali,Anwar Khan

doi:10.3390/su14042181

Abstract

One major concern about foreign direct investment (FDI) is the potential negative environmental impact due to increased CO2 emissions. However, there is a possibility that FDI mitigates CO2 emissions through green innovation and creates a cleaner environment. In the existing literature, there is no significant empirical evidence on the linkage among FDI, green innovation and CO2 emissions in the context of BRICS countries. Hence, this study aims to analyze the impact of FDI and green innovation on the environmental quality of BRICS economies for 1990–2014. The study employed Augmented Mean Group (AMG) estimators for empirical data analysis. The study’s findings depict that foreign direct investment, energy use, and economic growth have a significant and positive impact on the CO2 emissions of BRICS economies. Moreover, green innovation has a significant inverse impact on CO2 emissions. The results show bidirectional causalities between CO2 emissions and green innovation, trade openness and CO2 emissions, energy use and CO2 emissions, and urbanization and CO2 emissions. Additionally, the findings reveal a one-way causality from CO2 emissions to GDP and CO2 emissions to urbanization. This study offers essential policy recommendations for the environmental sustainability of BRICS countries through green innovation.

Highlights

During the last few decades, foreign direct investment has contributed to producing highly advanced and high-tech products
This study presents a systematic procedure to investigate Equation (2) empirically: (i) Pesaran CD (PCD) was used to examine cross-sectional dependence among the variables; (ii) Pesaran CADF and Pesaran CIPS panel unit root tests were used for the unit root tests; (iii) for observing cointegration among the variables, Westerlund cointegration, Pedronicointegration, and Kao-cointegration tests were employed; (iv) the Augmented Mean Group (AMG) estimator was used for the long-run estimations andthe CCEMG estimator was used for robustness analysis; (v) to examine the directions of causalities, we employed Dumitrescu and Hurlin panel causality test
Numerous studies have highlighted the relationship of foreign direct investment (FDI), economic growth, trade openness, urbanization, and energy consumption with environmental sustainability in the available literature

Summary

Introduction

During the last few decades, foreign direct investment has contributed to producing highly advanced and high-tech products. FDI has a significant impact on the technology innovations of the host countries [1]. Researchers and policymakers have termed FDI as the primary economic growth tool and recognized it as an established source of employment and channel of technology transfer to its host economies [2,3,4,5,6,7]. FDI enhances the production processes in the host countries, and can be detrimental to the environment. The production activities result in the economic benefits of the host economies, but the environmental cost can sometimes be higher than the financial gains many countries have realized the ecological cost of production processes nowadays, mainly foreign direct investment in the host countries. The majority of governments are concerned about the consequences of FDI and production

Objectives

Methods

Results

Conclusion