The impact of foreign direct investment on environment: evidence from newly industrialized countries.

Abstract

This research aims to investigate the effect of foreign direct investment on carbon emissions through the panel ARDL method using annual data for the 1990-2016 period for the newly industrialized countries (NICs), including China, Malaysia, Mexico, Philippines, Thailand, Turkey, India, and Brazil. The stationarity of the series was obtained through LLC, IPS, and Fisher ADF panel unit root tests, the cointegration relationship with the panel ARDL-PMG approach, and the causality relationship with Dumitrescu and Hurlin (DH) tests. As a result of the long-term analysis, the foreign direct investment, energy consumption, and trade openness have a positive and significant impact on carbon emissions, whereas economic growth has a negative and significant impact on carbon emissions. The result shows that a percent increase in foreign direct investment increases carbon emissions by 0.03%. As a result of the short-term analysis, it was seen that the coefficient of the error correction term (ECT) was negative and statistically significant. According to DH panel causality test results, there exists a bidirectional causality relationship among energy consumption and carbon emissions, and a unidirectional causality relationship from economic growth and trade openness to carbon emissions and from carbon emissions to foreign direct investment. As policy implication, in industrialized countries especially China and India, there is a greater need to invest in green energy consumption at a larger scale to achieve future sustainable development goals.