Impact of economic and financial development on carbon emissions: evidence from emerging Asian economies

The criticality of FDI in Environmental Degradation through financial development and economic growth: Implications for promoting the green sector

Climate change is a pressing issue across the globe that threatens life, development and the economy. Development is in itself is a holistic term which necessitate fundamental modifications in economic, social, ecological, political and other associated systems. For this development and particularly for economic development, humans interact with the environment and allocate scarce resources. Accordingly, this has resulted into ecological imbalances which have contributed into environmental degradation and thereafter global warming. In this background, this paper tries to explore the causal relationship among the macro-economic variables and CO2 emissions which somewhere portrays relationships among financial, economic, industrial growth and environmental degradation. Developed and developing countries partake with environmental degradation for fostering economic and financial growth. Therefore, this paper examines the causal relationship between, CO2 emissions, energy consumption, FDI(foreign direct investment)inflows and stocks traded for India using Granger causality test. The paper aims to investigate whether financial, economic and industrial development is inter-connected with India's energy consumption and carbon emissions. To this aim, time series data covering 1988–2012 period was used. The study concludes that unidirectional causality exists between FDI inflows and CO2 emissions and between stocks traded and CO2 emissions. Further, bi-directional causality was found between FDI inflows and stocks traded.

Foreign direct investment (FDI) flows from developed to developing countries may increase carbon emissions in developing countries as developing countries are seen as pollution havens due to their lenient environmental regulations. On the other hand, FDI flows from the developed world may improve management practices and advanced technologies in developing countries, and an increase in FDI flows reduces carbon emissions. Most of the existing studies examine the relationship between FDI flows and carbon emissions by using aggregate FDI flows; however, this paper contributes to the literature by analyzing the impact of FDI flows on carbon emissions in Brazil, Russia, India, China, and South Africa (BRICS) between 1993 and 2012 using bilateral FDI flows from eleven OECD countries. According to our empirical results, from which OECD country FDI flows to BRICS countries matters for carbon emissions in BRICS countries. Our results confirm that FDI flows to BRICS countries from Denmark and the UK increase carbon emissions in BRICS countries, confirming the pollution haven hypothesis. On the other hand, FDI that flows from France, Germany, and Italy reduced carbon emissions in the BRICS countries, confirming the pollution halo effect. FDI flows from Austria, Finland, Japan, Netherlands, Portugal, and Switzerland have no significant impact on carbon emissions in BRICS countries. The BRICS countries should promote clean FDI flows by reducing environmental damages, and investing countries should be rated based on their environmental damage in the host countries.

Achieving economic growth is the primary concern mostly of every country to enhance living standard; however, an increase in economic activities may have environmental consequences. Foreign direct investment is also considered a driver of economic growth while it affects the quality of environment. The role of institutions can be useful to enhance foreign direct investment (FDI) inflow which can in turn increase economic growth and safeguard environmental quality. Based on the ongoing debate, this study attempts whether the quality of institutions plays any role in FDI inflow and in enhancement of environmental quality. For this purpose, this study examines the role of institutional quality in FDI inflows and carbon emission reduction in the global panel, 107 world developing, and 39 Belt and Road Initiative countries for the period of 2002-2019. By using both static and dynamic panel models, the results indicate that governance indicators are important for FDI inflows, but this impact varies in different panels. Overall, institutional quality has a significant and positive impact on foreign direct investment inflow, while energy use reduces it in all panels. Economic growth positively associated with carbon emission, while the square of GDP evidences the environmental Kuznets curve. FDI and trade increase global and developing countries' emissions, while reducing emission in Belt and Road countries. Institutional quality along individual indicators, political stability, rule of law, and regulatory quality are found to be poor governance indicators in all panels, while voice and accountability and control of corruption are weak indicators in Belt and Road countries; however, the interaction term proves that the quality of institutions is regulated by financial development and FDI in carbonemission reduction in all panels. This study has considerable policy significance for countries to carry out strong policy reforms to increase green FDI and improve environmental quality.

Expanding the capability of technological innovations is curial in acquiring renewable energy sources, enhancing the efficiency of energy and lowering carbon dioxide emissions which can leads to environmental sustainability however the factors effecting the level of technological innovations needs to be explored. Consequently, this study explores the effect of carbon dioxide emission, energy consumption and foreign direct investment on technological innovations in 179 global countries from 1980 to 2019. The results indicate that foreign direct investment significantly and negatively affect technological innovations proxy by patent nonresidents in the lower quantiles while this effect is negative insignificant at the highest. Carbon dioxide emission and financial development significantly and positively effect technological innovations proxy by patent nonresidents while energy consumption and trade significantly decrease technological innovations. In case of dependent variable research and development, the effect of foreign direct investment on technological innovations and international trade is negative while financial development and energy consumption positively and significantly affect technological innovations proxy by research and development. The effect of financial development is negative significant and negative insignificant across quantile while the highest quantile gives positive coefficient thus shows that its increase technological innovations proxy by research and development. The findings have considerable policy implications for the sample countries regarding economic growth, foreign direct investment inflow, energy consumption and technological innovations.

This paper investigates the relationship between Foreign Direct Investment (FDI) and economic growth in a group of 16 Arab countries from 1970 to 2008. The empirical analysis also addresses the role of what are identified in the literature as local for deriving growth benefits from FDI. Using a dynamic panel approach, it is found that the impact of FDI on economic growth in Arab countries is limited or negligible. The findings also suggest that financial development, trade openness, human capital and infrastructure quality are not significantly improving Arab countries' capacity to reap growth benefits from FDI. The paper suggests that the preconditions should not be seen as of equal importance. The sectoral composition of FDI plays a critical role in deriving FDI growth benefits which might make it a necessary precondition for FDI to promote economic growth, while other factors such as financial development, trade openness, human capital and infrastructure quality could be seen as sufficient preconditions for reaping FDI growth dividends. The paper's findings have important policy implications as Arab countries can turn to domestic policy solutions to direct FDI inflows to the dynamic sectors and focus not only on FDI quantity but also on FDI quality. Meanwhile, efforts should be made to reform and improve institutional quality, macroeconomic policies, and domestic financial markets.Keywords: FDI, Economic Growth, Arab CountriesJEL classification: F21, O40, O43(ProQuest: ... denotes formulae omitted.)1. INTRODUCTIONCapital is the cornerstone of any production process at both the micro and the macro-economy levels. Capital can be obtained through domestic sources as well as through foreign sources, which is mostly in the form of Foreign Direct Investment (FDI). FDI inflows have multifaceted features which make them preferable to other sources of capital. These features include filling savings-investment gaps, relaxing foreign exchange constraints, and consisting of a bundle which includes not only capital but also technology, knowledge, and marketing and managerial skills (Grossman and Helpman, 1992; Walz, 1997; Pradham, 2003).FDI has become the most stable and the largest component of capital flows to developing countries. As a result, FDI is considered an important element in the economic development process. Yet the role of FDI in the economic growth/ development process has for long been a topic of intense debate. To date, the empirical evidence of the effect of FDI on economic growth is not conclusive.While one stream of research has indicated a positive impact of FDI on economic growth, another stream reports otherwise. A third stream of research suggests that the effect of FDI on a host country's economy is dependent on the country's absorptive capacity in terms of its human capacity and the level of economic and financial development (Hermes and Lensink, 2004; Makki and Somwaru, 2004).FDI flows around the world have dramatically increased in the past three decades. World FDI flows rose from $54 billion in 1980 to $208 billion in 1990, then to $1,401 billion in 2000 before falling to $1,114 in 2009. Arab countries were not an exception to this trend. Total FDI inflows to Arab countries increased from a mere $502 million in 1970 to $1,288 million in 1990, then jumped to $6,056 million in 2000 before soaring to $47.6 and $79.2 billion in 2005 and 2009, respectively (UNCTAD). These trends reflect the increasing importance of FDI flows both for recipient and exporting countries.This paper aims at answering two main questions. First, did FDI inflows contribute to economic growth in Arab countries over the period 1970-2008? Second, can country-specific features and initial conditions explain cross-country variations in the growth benefits of FDI? Answers to these questions provide insights into how changes in economic and institutional conditions can affect FDI prospects for Arab countries, as well as inform policy responses for acquiring growth benefits from FDI in the future. …

This study investigates the environmental consequences of foreign direct investment (FDI) inflows, focusing on their impact on carbon (CO2) emissions. The findings indicate that FDI inflows significantly contribute to increased CO2 emissions, both in total quantity and intensity. Low- and middle-income nations are disproportionately affected. Additionally, higher levels of institutional quality, financial development, and technological innovation amplify the positive relationship between FDI and emissions. This positive link can be explained by the scale effect, where increased economic activity from FDI leads to higher energy use and emissions. This study also reveals the dual role of institutional quality, financial development, and technological innovation in moderating the environmental impact of FDI. While these factors facilitate growth and attract investment, they can also result in increased emissions if sustainability is not prioritized. These findings offer meaningful implications for policymakers seeking to balance economic growth with sustainability, especially in regions vulnerable to increased emissions due to FDI.Graphical

Nearly all developing countries actively seek capital and technology from the advanced countries. Although private direct foreign investment (mainly in the form of multinational enterprise) is viewed with ambivalence by many developing countries, it is nonetheless true that direct investment remains a substantial source of capital and is sometimes the only source of specific technologies. Indeed, given the slow growth in official external assistance, developing countries are becoming more, not less, dependent on direct foreign investment. While disbursements of official development assistance by the OECD countries rose 43% from 1961 through 1970, direct investment flows rose almost 90% over the same period. In the later year, the flow of direct investment was more than two-fifths of all official assistance, $3.2 billion compared to $7.8 billion.1 Furthermore, the United States and other major capital exporting countries would prefer, for economic as well as ideological reasons, to channel more of their capital outflows to developing countries through private investment. It is highly probable, therefore, that developing countries will continue to rely on direct foreign investment in the foreseeable future to carry out their development programs. It is against this background that the present study seeks to identify the empirical determinants of direct foreign-investment flows in the manufacturing sectors of developing countries. Our purpose is to select from the many economic, social, and political features of a developing country those features that are critical to making that country attractive or unattractive to private foreign investors. Available empirical studies are limited

This study aims to investigate the impact of foreign direct investment (FDI) inflow, financial development, economic growth, globalization, innovation, and urbanization on the carbon dioxide emissions in China by using long-ran time series dataset from 1970 to 2021 which for the first time used the newly developed dynamic autoregressive distributed lags (ARDL) simulation model for results analysis. Dynamic ARDL simulation model removes the shortcomings of the traditional ARDL models by predicting the actual change (positive and negative shocks) in the independent variables and its impact on the main dependent variables by 5000 simulations through graphical representation. The findings of the long-run dynamic ARDL simulations indicate that FDI inflow, globalization, and innovation negatively and significantly impact the environmental degradation while financial development, economic growth, and urbanization cause to increase the environmental degradation in China. Recommendations are suggested based on the findings of this study.

The global environment has recently been facing sustainability threats owing to industrial and economic expansions. Accordingly, this study empirically examines the impact of carbon emissions and the directional causality between carbon emissions and environmental quality, financial development, and economic growth. We used data from 65 economies from 2010 to 2021, applying fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) approaches. Generally, the findings from the analysis revealed that the estimated coefficients of carbon emissions were negative and significant across the model, except for greenhouse gas emissions, which produced an insignificant result in developed economies. This result proves that an increase in carbon emissions and other forms of pollution are detrimental to environmental quality, economic growth, and financial development. Further results revealed that fossil fuels are positively and significantly related to the economic growth and financial development of selected countries. Empirical outcomes indicate that ineffective control of environmental pollution and carbon emissions is a major challenge to the economic growth trajectories of the selected countries, especially in emerging economies. The results from directional relationships revealed that bi-directional causality exists between CO2 and GDP; between total greenhouse gas emissions and economic growth, with no directional relationship of CO2 emissions to financial development and vice versa; and economic growth to CO2 emissions from gaseous fuel consumption and vice versa. Generally, this outcome indicates that improved environmental quality control can accelerate economic growth and financial development worldwide. This study provides insights to governments, policymakers, international organizations, researchers, and many other stakeholders. This study suggests that stricter fiscal and monetary policies, laws, and regulations, such as environmental taxes and carbon emission taxes, with strong implementation strategies, especially in emerging economies, are strongly recommended worldwide. Further recommendations suggest the development of technologically innovative policies that can counter all the impacts of devastating human activities on the environment, and these are encouraged. A greater consumption of renewable energy and the use of other innovative machines that are environmentally friendly and can help control various forms of pollution and carbon emissions have been encouraged globally.

In this study, the long termed effects of foreign direct (capital) investments inflows and outflows on the economic growth of the economies of developed G-7 countries where the capital mobility is intense and selected emerging market economies (Brazil, China, India, Mexico, Russia, South Africa and Turkey (EME-7)) are empirically analyzed for the period of 1994-2015 within the scope of the new generation panel data methodology. From this aspect, it is also aimed to economically analyze whether the foreign direct investments inflows and outflows in countries of G-7 and EME-7 have an effect on the economic growth as is seen in the theoretical framework by being considered the capital exporter/importer positions of these countries. Determined in consequence of the study that foreign direct investments inflows/outflows in the countries of G-7 have a positive and statistically significant effect on economic growth in the long term. Also determined that the foreign direct investments inflows have a positive and statistically significant effect on economic growth in countries of EME-7; while the foreign direct investments outflows have not the same effect on the economic growth. These results which are consonant with the theoretical and empirical literature show that just both foreign direct investments inflows and outflows have a significant role in economic growth on G-7 countries; just foreign direct investments inflows have an important role in economic growth on EME-7 countries at the same time.

The current examination ascertains the impact of foreign direct investment, urbanization, economic growth, fossil fuel consumption on carbon emissions in eleven rising Asian economies. Panel data has been scrutinized from 1990 to 2018, and (ARDL)/PMG model is executed. The outcomes of the model exemplify that in these growing Asian economies, the triumph to cuitivate economic growth, foreign direct investment, urbanization and fossil fuels are bestowing CO2 emissions and deteriorating the environmental circumstances at the regional level. Moreover, the conclusions emphasis that foreign direct investment is a source of environmental humiliation and increases carbon emissions at the regional level. Furthermore, outcomes of the investigate also confirmes the existence of (EKC) in these eleven emerging Asian economies. The study also suggest that by lessening the consumption of fossil fuel energy and encouragement of an environmental responsive economic growth policy will be suitable for the affluence in these emerging developing Asian economies and also the rest of world.

This study aims to investigate the relationships between economic growth, foreign direct investment (FDI) inflows, environment quality, and financial development for Middle East countries using simultaneous equation models over the period 1980–2014. Our empirical results pointed out that there is a unidirectional causality running from financial development to CO2 emissions. However, the results support the occurrence of bidirectional causality from CO2 emissions and economic growth, a bidirectional causal relationship between FDI inflows and CO2 emissions, and a bidirectional causal relationship between FDI inflows, economic growth, and financial development for the global panel. The study suggests that financial systems should take into account environmental aspects in their current operations in these countries. In addition, it is obligatory for Middle East countries to adopt sound financial, foreign, and economic policies to promote economic growth, protect the environment, with strong FDI inflows and a higher level of financial development.

The Asian financial crisis has raised doubts about the role of foreign capital in future economic development of ASEAN. This article looks at the FDI component of foreign capital and examines its contribution to growth and stability in the ASEAN-5 economies. Based upon a simple growth accounting framework, the findings indicated that FDI directly accounted for 4 to over 20 per cent of GDP growth in the ASEAN-5 during the 1987-97 period. Moreover FDI inflows were found to be a stabilizing factor during the Asian financial crisis. These positive results need to be factored into future policy deliberations on the appropriate role of foreign capital in ASEAN development. I. Introduction The rapid growth enjoyed by the Association of Southeast Asian Nations (ASEAN) was interrupted by the Asian financial crisis in 1997. To date, the ASEAN members are still grappling with the economic challenges. The crisis has also aroused doubts and confusion about the past strategy and future direction that economic development should take. In particular, the Asian financial crisis has created confusion about the role of foreign capital in the development of ASEAN. Since the crisis, there has been heated debate on how beneficial foreign capital is in promoting economic growth, given that it also created systemic risks that were a key to the Asian financial crisis. This paper contributes to the debate by assessing the role of foreign direct investment (FDI)1 in generating sustainable growth. Though there has been a large number of studies of FDI, few have gone beyond qualitative assertions regarding FDI and economic growth. This study makes some attempt at rectifying this lacuna by quantifying the contribution of FDI to growth within a growth accounting framework. This study also attempts to investigate a second important aspect of FDI: its relative stability in relation to other forms of foreign capital and its contribution to mitigating external shocks experienced during the Asian financial crisis. The discussion will focus on the five founding members of ASEAN 2 for two important reasons. The economies of these members had undergone a most dramatic experience from high growth to crisis. Also the minimum requirements for data availability are met for these members. This article is organized as follows: Section II provides a brief introduction to FDI inflow into ASEAN-5, Section III analyses the contribution of FDI to growth within a growth accounting framework, Section IV examines the relative stability of FDI flows during the Asian financial crisis, and Section V completes the study with some overall conclusions. II. FDI Inflows in Asean-5 Prior to the Financial Crisis The last two decades have witnessed sustained expansion in FDI inflow into the ASEAN-5 economies (Figure 1). However, the magnitude of FDI inflow has changed over time. FDI inflows only increased gradually from US$1.3 billion in 1975 to US$2.2 billion in 1985. From 1986, however, FDI increased rapidly. The 1996 FDI figure of US$23 billion is more than eight times the 1986 level. This take-off of FDI inflow in ASEAN-5 largely reflects the receptive policies adopted by these members. While Singapore practised liberal trade and investment policies from the early 1970s, other Southeast Asian nations followed policies of protecting manufacturing activities from foreign competition before mid to late 1980s. This was influenced by the fact that they were largely commodity exporters. Since mid to late 1980s, these economies have embarked upon extensive trade and investment liberalization. This has resulted in accelerated FDI inflow (Chen and Drysdale 1995). In addition to a liberal investment regime, the ASEAN-5 economies also possessed locational advantages that included low costs of inputs, large domestic markets, high growth rates, and flexible labour markets. Some members, such as Indonesia and Malaysia, are also endowed with natural resources such as oil and minerals. …

This paper investigates the direct and indirect consequence of foreign direct investment (FDI) inflows on carbon dioxide (CO2) emissions in India, covering1980 to 2014.To quantify the indirect outcome of FDI taking place CO2 emissions, this study considers three mediating channels of FDI. The three broad mediating channels of FDI inflows are energy structure, industrial structure, and high-carbon technology, by which the foreign direct investments affect India's carbon dioxide emissions. The unit root test, the Johansen cointegration, the Granger causality, and the Seemingly Unrelated Regressionare used in this study for the empirical analysis. The findings discover a long-run cointegrating link between FDI inflows and CO2 emissions, as well as a one-way causality running from FDI to CO2 emissions. The outcomes of the seemingly unrelated regression estimation indicate that all the mediating factors significantly contribute to the carbon dioxide emissions level. The findings of this paper reveal that FDI inflows affect India's CO2 emission level mainly by the mediating factors compared to its direct effect. Finally, the study suggests that the policy makers should prioritize the redistribution of foreign investment from high carbon-intensive technology to less carbon-intensive and cleaner technologies for a carbonless and sustainable future in India.