The Impact of Economic Growth, Foreign Direct Investment, Urbanization and Trade Openness on CO<sub>2</sub> Emissions in Sri Lanka

Abstract

Climate change in Sri Lanka is a big issue in recent years and CO2 emission is continuously rising in Sri Lanka. The main objective of the study is to examine the impact of economic growth, foreign direct investment, urbanization and trade openness on CO2 emissions in Sri Lanka during the period 1978-2019. To accomplish the objective, applied Autoregressive Distributed Lag (ARDL) model to determine the long-run and short-run effects. CO2 emission is used as the dependent variable. Foreign direct investment, per capita GDP, trade openness and urbanization variables, which act as the independent variables in the model. The results indicate that GDP per capita, urbanization and trade openness could lead to increased environmental emissions in the long-run. However, GDP per capita could lead to decreased environmental emissions in the short-run. In order to prevent the increase of CO2 emissions caused by economic growth, urbanization and trade openness, the level of CO2 emissions should be considered when making policies to improve economic growth, and urbanization. Moreover, the government should design the trade reforms and policies to be accompanied by strong environmental policies in the long-run.