FDI or International-Trade-Driven Green Growth of 24 Korean Manufacturing Industries? Evidence from Heterogeneous Panel Based on Non-Causality Test

Abstract

Manufacturing, as an energy-intensive industry, plays a major role in economic growth. Its green growth is the focus of national planning for sustainable development, especially for a country such as Korea, which has a scarcity of fossil energy of its own. While internationalization has brought Korea scarce energy, serious carbon emissions have become a pressing issue. It is still necessary to explore the relationship between globalization and green growth in manufacturing. Thus, our paper aims to observe their relationship by using 24 manufacturing industries from 2011 to 2019. Through the panel Granger non-causality test and the Dumitrescu–Hurlin test, we find that imports and inward foreign direct investment (FDI) causes green growth at the overall manufacturing level, but their causality relationships exist in different industries. The green-growth causality relationship of inward FDI mainly exists in capital-intensive and internationally competitive manufacturing industries (manufacture industries of basic metals; furniture; food products; coke, briquettes, and refined petroleum products; and chemicals and chemical products, except pharmaceuticals and medicinal chemicals). Furthermore, the green-growth causality relationship of imports primarily exists in the fossil-energy-consumption-intensive manufacturing industry (manufacture industries of motor vehicles, trailers, and semitrailers and coke, briquettes, and refined petroleum products). Furthermore, in our regression analysis, we find that only inward FDI robustly promotes the Korean manufacturing sector’s green growth; the positive effect is in the range from 0.005 to 0.009. Though the parameter estimates are positive and significant for FDI, they are close to zero, suggesting very limited positive effects that are close to almost zero. Conversely, imports have no significant impact, which we speculate is related to the import structure of Korea. Hence, the Korean manufacturing development model suggests that developing countries with similar country characteristics need to develop and guide the formation of capital-intensive and competitive industries. Additionally, it is imperative to decarbonize energy-intensive industries and to work on renewable energy development and diffusion. Finally, it is essential to introduce various green monitoring mechanisms to reduce carbon emissions. The government needs to strengthen its support for research and development of innovative technologies to reduce carbon emissions as well as promote the development of environmental and energy-saving related professional service enterprises.