The impact of green FDI on environmental quality in less developed countries: A case study of load capacity factor based on PCSE and FGLS techniques

Abstract

This paper examines the effect of green foreign direct investment (GFDI) on environmental quality (EQ) in 34 less-developed countries (LDCs) from 2003 to 2021. We analyze balanced panel data using Feasible Generalized Least Squares (FGLS) and Panel-Corrected Standard Errors (PCSE). Our findings reveal several vital insights: (1) GFDI helps improve EQ. (2) Environmental costs associated with economic growth are negative. (3) Trade openness positively influences EQ. (4) EQ is enhanced by institutional quality, energy use, and population expansion in the chosen countries. (5) The existence of a U-shaped curve was established. This is valuable to the relatively scanty literature on GFDI, especially in LDCs. To the best of our awareness, this study simultaneously employs the Load Capacity Factor (LCF) and Total Value of Announced Greenfield projects as proxies for environmental sustainability and GFDI for the first time. Secondly, incorporating PCSE and FGLS models in this context is an innovative methodological strategy. The present research work provides to the existing theoretical and empirical discussions on GFDI and EQ and has practical implications that inform policy-making.