The impact of energy consumption, income and foreign direct investment on carbon dioxide emissions in Vietnam

Abstract

The aim of this study is to understand the relationship between CO2 (carbon dioxide) emissions, energy consumption, FDI (foreign direct investment) and economic growth in Vietnam over the period from 1976 to 2009. The techniques of cointegration and Granger causality are adopted to examine the relationship between the variables. The results confirm the existence of long-run equilibrium among the variables of interest. Meanwhile, energy consumption and income positively influence CO2 emissions, but square of income has negative impact on CO2 emissions in Vietnam. These outcomes support the EKC (Environmental Kuznets Curve) hypothesis which assumes an inverted U-shaped relationship between CO2 emissions and economic growth in Vietnam. The results of this study also reveal that there are two-way causalities between CO2 emissions and income, and between FDI and CO2 emissions in Vietnam. In addition, energy consumption is found to Granger-cause CO2 emissions in the short- and long-run. Energy consumption, FDI and income are the key determinants of CO2 emissions in Vietnam. Therefore, adoption of clean technologies by foreign investment is important in curtailing CO2 emissions in the country, and sustaining economic development at the same time.