Pollution Haven or Halo? How European countries leverage FDI, energy, and human capital to alleviate their ecological footprint

Abstract

The nexus between economic growth and the ecological footprint has been a recurring focus investigation for a long time. European countries are speeding up their environmental efforts to improve air quality, and their commitments for implementing the Paris Climate Agreement's 2015 treaty action plans. Thus, this paper investigates the environmental Kuznets Curve and the pollutant halo hypothesis for the time period of 1990–2020 for 16 European countries. The empirical analysis uses cross-sectionally augmented autoregressive distributed lag modelling, which accounts for time dynamics, cross-sectional dependence, and cross-sectional heterogeneity. The Augmented Mean Group and Dumitrescu and Hurlin panel causality tests were alsoemployed in this study. The empirical result revealed validation of the pollution Halo Hypothesis, foreign direct investment and ecological footprints have a negative correlation. GDP and its square form an inverted U-shaped curve, which supports the environmental Kuznets Curve hypothesis. When it came to ecological footprints, renewable energy had a negative correlation, whereas energy structure had a positive one. Nonetheless, GDP and ecological footprints have a bidirectional causal relationship. Furthermore, the panel non-causality test revealed a bidirectional causality relationship between ecological footprints and GDP, but a unidirectional causality relationship is discovered from foreign direct investment, renewable energy, energy structure and human capital with ecological footprint. According to the findings of the research, a number of policy recommendations for the analysed bloc are provided, including the implementation of resource conservation as well as the establishment of sustainable energy policies.