The effects of FDI and government expenditures on environmental pollution in Korea: the pollution haven hypothesis revisited.

Abstract

This paper uses the pollution haven hypothesis (PHH) to examine the effects of foreign direct investment (FDI) and government expenditures on environmental quality in Korea. For this purpose, we conducted autoregressive distributed lag (ARDL) bounds testing for the period 1970-2018. Empirical results indicate that in Korea, increased FDI, per capita gross domestic product (GDP), energy use, and imports have led to increased per capita carbon dioxide (CO2) emissions, while government expenditures, renewable energy, and exports have led to decreased per capita CO2 emissions. Empirical results also reveal an N-shaped relationship between per capita GDP and per capita CO2 emissions. Moreover, the PHH is valid in Korea to a moderate degree, and the detrimental effect of FDI on environmental quality is relatively limited. Furthermore, government expenditures improve environmental quality. These empirical findings support Korea's leading role in implementing comprehensive green growth initiatives.