Nexus of ecological footprint and foreign direct investment pattern in carbon neutrality: new insight for United Arab Emirates (UAE)

Abstract

Carbon neutral is among the possible ways of solving the problem of climate change. Many scholars have utilized different single indicators such as CO₂ and methane with different variables to mitigate the possible ways of solving the problem of global warming. The present study employs a specific country (UAE) approach to investigate the possible way of solving climate change. The author utilized 1980-2018 annual data of the UAE to investigate the possibility of carbon neutral in the UAE as to suggest ways of limiting climate change. Both linear and non-linear (squared) foreign direct investment (FDI) and GDP per capita were added to the study and considered as the variables of interest and other control variables (energy use and population). Among the findings of this study are inverted U-shaped relationship between economic growth (GDP per capita) and ecological footprint which confirms EKC for the UAE, positive relationship between energy use and ecological footprint, negative relationship between FDI and ecological footprint in all stages which established a flat pattern of relationship, and a positive relationship between the population and ecological footprint. Findings from causal analyses exposed a two-way direction or feedback (bidirectional) between economic growth (GDP) and urban population, and between energy use and urban population both in the short and long run. Also, a one-way transmission (unidirectional) is found transmitting from ecological footprint and FDI to population both in the short run and long run; from the ecological footprint, energy use, and FDI to economic growth; from the ecological footprint and FDI to energy use in the long run; and from ecological footprint to FDI and energy use in the short run. The policy focus should be towards the improvement on the urban population. FDI pattern suggests the pollution halo hypothesis which is a pointer towards its (FDI) crucial contribution to environmental performance. Hence, FDI should be encouraged through relaxing of some laws that are preventive in nature towards FDI so as to maintain this positive trend towards sustainable development. The analytical abstract demonstrates the interactions that exist among the employed variables in Granger causality analysis. The big arrows denote two-way transmission while the small arrows show one-way causal transmissions passing to the variables where they are pointing at.

Keywords: EKC; Ecological footprint; FDI; GDP; PHH; Sustainability; UAE.