Foreign direct investment and carbon emissions from land use, land-use change, and forestry (LULUCF): empirical evidence from tropical forest countries

Abstract

Since 1990, global forest area has been reducing; tropical forests have suffered from different anthropogenic and natural factors that account for forest loss. Tropical deforestation is the second driver of anthropogenic emissions; increasing demand and investments in tropical forests drive these emissions. These forests attract significant foreign direct investments, but the effects of these investments on carbon emissions from land use, land-use change, and forestry are not well enshrined in the literature for the countries under study. This paper seeks to analyse the impact of foreign direct investments on carbon emissions from land use, land-use change, and forestry amongst 30 tropical forest countries from 1996 to 2019. The sampled countries were disaggregated by tropical blocs: Amazon, Congo basin, Australasia, and Southeast Asia, and by income levels; low-income, lower-middle, upper-middle, and high-income. The findings reveal a U-shape structure of the impact of FDI on carbon emissions from LULUCF within Congo basin and Amazon countries; at higher levels of FDI, emissions from LULUCF will increase while Australasia and Southeast Asian countries show an inverted U-shape impact, thus at higher levels of FDI, there will be a negative and significant impact on carbon emissions from LULUCF. The income levels reveal an inverted U-shape for low-income and high-income countries and a U-shape for upper-middle-income countries; the impact for lower-middle-income countries is not significant. Overall, for the whole sample, the impact depicts a U-shape. This paper proposes high-level development of environmental conditions for FDI for different sectors that align with country and regional green growth plans. Enhancing national and regional governance systems to enforce decisions and fight corruption effectively can significantly promote green FDI for green growth.