The Relationship between Foreign Direct Investment and The Air Pollution in Developing Countries

Abstract

The relationship between foreign direct investment and the environmental pollution is controversial in the field of economics. Using the dataset of 20 developing countries collected in the period 1995- 2012, the research provides an estimation of the impact of inflows of FDI to developing countries on the air pollution. A time series- cross section data with a fixed effect and heterogeneous slopes is implemented to identify the variation between countries by Error Correction Model (ECM). It was evident based on the results that the air pollution was not affected by FDI inflows. Moreover, the assessed results indicated the non-existence of an efficient policy that works on controlling pollution emissions in most of the countries. Furthermore, most of the countries lack technological methods and did not adopt efficient policies to regulate the pollution emissions. Finally, the coefficient of manufacturing value added in Lebanon was positive and significant, thus suggesting that the techniques of production utilized in domestic industry cause air pollution.