Foreign direct investment and renewable energy: Examining the environmental Kuznets curve in resource-rich transition economies

Abstract

This study evaluates the nexus mechanism between foreign direct investment (FDI), economic growth (EG), renewable energy (REC), natural resources (NR), economic freedom (EF), and carbon dioxide emissions (CO2) in transition economies from 1998 to 2019. This research employed cross-sectional autoregressive distributed lag (CS-ARDL) and panel quantile regression (PQR) to assess the heterogeneity of the distributions. The estimates show a U-shaped nonlinear relationship between environmental pollution and economic growth, suggesting that the Environmental Kuznets Curve (EKC) hypothesis does not hold for transition countries. Foreign direct investment was found to have a positive association with carbonization, signifying the presence of the pollution haven hypothesis in transition economies. Further, a negative relationship was established between economic growth and carbon emissions at lower growth rates, which transpires to be positive when the pace of growth crosses the threshold value. We also found that renewable energy and economic freedom have a significant role in promoting environmental sustainability, as these variables have adverse and significant effects on CO2 emissions. This finding suggests that increasing renewable energy consumption and intensifying the transition towards a market-based economy should be the main priorities in formulating sustainable development strategies. This research also provides the causal relationships between the selected variables and CO2 emissions and policy recommendations for green economic development.