Re-examination of pollution haven hypothesis for Turkey with Fourier approach.

Abstract

The aim of this paper is to investigate the possible impact of foreign direct investment inflows (FDI) on environmental pollution and to test the validity of the pollution haven hypothesis (PHH) in the case of Turkey over the period 1970-2020. For this purpose, we apply the Fourier approximation to determine stochastic properties of the variables that are FDI, economic growth, energy consumption, and CO2 emissions used in empirical analysis and the relationship between them. The advantage of the Fourier approximation is capable of capturing possible structural breaks in unknown forms and numbers in the series. According to Fourier KPSS and Fourier FADF tests, all series are stationary at order one, I (1). Fourier Shin and Fourier ADL cointegration tests put forth evidence of the existence of a long-term relationship between CO2, GDP, EC, and FDI. FMOLS expanded with Fourier terms suggesting that FDI has relatively little but a positive impact on CO2 emissions, so we conclude that PHH is valid for Turkey. The other finding reveals that there exists an inverted U-shape relationship between economic growth and CO2 emissions. According to this result, the environmental Kuznets curve (EKC) hypothesis for Turkey is also supported. Another remark of this paper is that energy consumption significantly increases environmental degradation in Turkey. These findings also are supported by Fourier Toda and Yamamoto causality test. There is a causality relationship from GDP, EC, and FDI to CO2 emissions. These findings offer useful recommendations for policymakers: the FDI, which uses new and clean technology, should be encouraged and implemented energy policies should be energy intensity reducer and efficiency increaser for reducing environmental pollution in Turkey.