The Impact of Foreign Direct Investment towards Carbon Dioxide Level: Pollution Havens Model for ASEAN5 Countries

Abstract

This paper aims to investigate the impact of foreign direct investment (FDI) on carbon dioxide (CO2) emissions through pollution -haven hypothesis modelfor original ASEAN5 (Malaysia, Singapore, Thailand, Indonesia, and Philippines) countries by using Autoregressive Distributed Lag (ARDL) approach also known as Bound test. Annual time series data is employed for the period spanning from 1970 -2008 comprising 39 years of observation. The ARDL technique has the advantage of not requiring a specific identification of the order of the underlying data besides this technique is suitable for small or finite sample size. The results of ECM-ARDL for short run analysis are indicated that in the Philippines case, most of the coefficients in the short run are significant except for gross national income per capita (GNI). In the short run, GNI has showed positively relationship with the CO2 while the manufacturing value added (MV) has negative relationship with the CO2.Other countries in this study; Thailand and Indonesia show a mix evidence of relationship between their independent variables and the dependent variable. Moreover, the results of the long run elasticities show that for GNI, MV, and FDI have significantly and positively influenced the level of CO2 in Indonesia and Thailand. As compared to Philippines, only FDI inflow is positively influence the level of CO2 in this country. ASEAN5 countries should carefully monitor the level of CO2 in the nation as they received more FDI inflow in the countries.