How to reconcile the climate change issue with economic growth? Spatial dual mediating effects of carbon emissions and foreign investment

Abstract

Climate change has steadily gained attention as the global economy has grown more quickly, preventing continued high-quality economic growth. In this context, the eco-innovation concept has recently risen to the top of the list of academic research topics since it is a crucial tool that combines reduced environmental effects with a favourable socioeconomic impact. Nevertheless, the environmental situation is not improving despite the increasing eco-innovation level. From one perspective, instead of concentrating on how eco-innovation lessens carbon emissions, this research explores the indirect effect of carbon emissions on the GDP-eco-innovation nexus. From another perspective, since FDI might lessen harmful pollution, this research analyses the indirect effect of FDI on the economic growth-eco-innovation nexus. Therefore, this paper highlights the relationship between eco-innovation and economic growth (GDP), considering the dual mediating roles of carbon emissions and FDI. First, we examine the effects of GDP on eco-innovation activities in nine MENA countries from 2000 to 2019 using the geographic Durbin model based on spatial panel data. Second, this paper analysed the dual mediating effect of carbon emissions and FDI using the spatial stepwise regression model. The findings of this paper are as follows: (i) GDP positively impacts eco-innovation activities, and (ii) carbon emissions and FDI mediate the GDP-eco-innovation nexus. Therefore, GDP, FDI, and carbon emissions are significant drivers of eco-innovation. This research represents an essential step towards a better understanding of the need to support the transition to sustainability.