The impacts of economic growth, foreign direct investment inflows, and energy usage on air pollution through globalization in China: A vector error correction model approach

Abstract

During its economic globalization, China ranked first in the world regarding air pollution since 2005. China's massive carbon dioxide emission that causes global warming, directly or indirectly, can be stimulated by its economic globalization process, which needs to be observed. Hence, this article aims to observe the direct and indirect impacts among foreign direct investment (FDI) inward, energy usage, carbon dioxide emissions, economic globalization, the share of the industry sector in GDP, and economic growth from the exact starting point of globalization, in other words opening the gate of China (1979) to the intensive trade war between China and the USA, that began to change international policies (2013) of China. The vector error correction model (VECM) and the Granger causality tests are performed to obtain the causality directions and impacts among the variables. The empirical results reveal emerging FDI-led economic growth and the existence of cultivating air pollution owing to energy use, FDI inward (polluting-FDI), and economic globalization in China. Regarding the output of Granger causality tests, direct unidirectional causality from energy use to air pollution and indirect unidirectional causality from energy use to economic growth through inward FDI are observed. This study proposes crucial policies to encourage cleaner production and energy-saving technologies that reduce air pollution of China and stimulate China's economic growth during globalization.