Influence of foreign direct investment on indicators of environmental degradation

Abstract

This study aims to contribute to the existing literature by looking at the influence of foreign direct investment on carbon dioxide emissions, carbon footprint, and ecological footprint. In order to realize the aim of this study, we have utilized the augmented mean group estimator, which is supported by common correlated effect mean group estimator in the analysis for 20 countries. The panel results reveal that foreign direct investment has no effect on environmental degradation indicators. The panel results further reveal that gross domestic product, energy consumption, and urbanization are the main contributors to environmental degradation. The results at country level show that foreign direct investment and urbanization increase pollution in the developing countries while they mitigate pollution in the developed countries. Moreover, gross domestic product and energy consumption increase pollution for both developed and developing countries, which includes China and the USA. The negative impact of foreign direct investment on environmental degradation in the developed countries can be explained on the basis that these countries have strong environmental regulations, which makes it almost impossible for dirty foreign industries to invest therein. From the output of this research, several policy recommendations are enumerated for the investigated countries.

Keywords: CO2 emission; Carbon footprint; Cross sectional dependency; Ecological footprint; Foreign direct investment.