Article Impact of Foreign Direct Investment on CO2 Emissions in South Asian Countries: The Moderating Role of Institutions
Abstract
Abstract Views: 62
This study investigates the moderating role of institutional quality on the empirical relationship between FDI and Carbon dioxide emission for panel of South Asian regions for the period 1996-2019 by using Dynamic OLS (DOLS) estimations. The literature on Pollution Haven Hypothesis (PHH) is extensive but the influencing role of institutions affecting the PHH is relatively limited especially in the context of South Asian economies. Unit Root test, Pedroni Cointegration test, Dynamic OLS, FMOLS and VECM methods has been used for the estimation of results. The significant moderating effect of institutions is observed on the association between Foreign Direct Investment and Carbon dioxide emissions. Firstly, we examined the relationship between Foreign Direct Investment and Carbon dioxide emissions and found out that Foreign Direct Investment increases Carbon dioxide emissions; hence the presence of PHH is found for South Asian countries. Then the institutions were introduced to analyze their moderating effects. The results show that mediating role of institutional quality is crucial in the nexus between FDI and CO2 emission. In the presence of quality institutions, Foreign Direct Investment significantly decreases the level of CO2 emission.
Downloads
References
Abid, M. (2016). Impact of economic, financial, and institutional factors on CO2 emissions: evidence from sub-Saharan Africa economies. Utilities Policy, 41, 85–94. https://doi.org/10.1016/j.jup.2016.06.009
Abid, M. (2017). Does economic, financial and institutional developments matter for environmental quality? A comparative analysis of EU and MEA countries. Journal of Environmental Management, 188, 183–194. https://doi.org/10.1016/j.jenvman.2016.12.007
Ahmad, M. H., Ahmed, Q. M., & Atiq, Z. (2018). The impact of quality of institutions on sectoral FDI: Evidence from Pakistan. Foreign Trade Review, 53(3), 174–188. https://doi.org/10.1177/0015732517734757
Al-Buriahi, M. S., Bakhsh, E. M., Tonguc, B., & Khan, S. B. (2020). Mechanical and radiation shielding properties of tellurite glasses doped with ZnO and NiO. Ceramics International, 46(11), 19078–19083. https://doi.org/10.1016/j.ceramint.2020.04.240
Ali, H. S., Zeqiraj, V., Lin, W. L., Law, S. H., Yusop, Z., Bare, U. A. A., & Chin, L. (2019). Does quality institutions promote environmental quality? Environmental Science and Pollution Research, 26(11), 10446–10456. https://doi.org/10.1007/s11356-019-04670-9
Angelopoulou, A., & Liargovas, P. (2014). Foreign direct investment and growth: EU, EMU and transition economies. Journal of Economic Integration, 29(3), 470–495.
Baek, J., & Pride, D. (2014). On the income-nuclear energy-CO2 emissions nexus revisited. Energy Economics, 43, 6–10. https://doi.org/10.1016/j.eneco.2014.01.015
Bakhsh, S., Yin, H., & Shabir, M. (2021). Foreign investment and CO2 emissions: do technological innovation and institutional quality matter? Evidence from system GMM approach. Enviromental Science and
Pollution Research, 28(15), 19424–19438. https://doi.org/10.1007/s11356-020-12237-2
Bashier, A. A., & Siam, A. J. (2014). Immigration and economic growth in Jordan: FMOLS approach. International Journal of Humanities Social Sciences and Education (IJHSSE), 1(9), 85–92.
Blanco, L., Gonzalez, F., & Ruiz, I. (2013). The impact of FDI on CO2 emissions in Latin America. Oxford Development Studies, 41(1), 104–
https://doi.org/10.1080/13600818.2012.732055
Chandran, V. G. R., & Tang, C. F. (2013). The impacts of transport energy consumption, foreign direct investment and income on CO2 emissions in ASEAN-5 economies. Renewable and Sustainable Energy Reviews, 24, 445–453. https://doi.org/10.1016/j.rser.2013.03.054
Deacon, R. T., & Norman, C. S. (2006). Is the environmental Kuznets curve an empirical regularity? In R. Halvorsen & D. F. Layton (Eds.), Explorations in environmental and natural resource economics. Edward Elgar Publishing Limited.
Engle, R. F., & Granger, C. W. (1987). Co-integration and error correction: representation, estimation, and testing. Econometrica, 55(2), 251–276. https://doi.org/10.2307/1913236
Eriandani, R., Anam, S., Prastiwi, D., & Triani, N. N. A. (2020). The impact of foreign direct investment on CO2 emissions in ASEAN countries. International Journal of Energy Economics and Policy, 10(5), 584–592. https://doi.org/10.32479/ijeep.10230
Essandoh, O. K., Islam, M., & Kakinaka, M. (2020). Linking international trade and foreign direct investment to CO2 emissions: Any differences between developed and developing countries? Science of the Total Environment, 712, Article e136437. https://doi.org/10.1016/j.scitotenv.2019.136437
Fauzel, S. (2017). The impact of FDI on CO2 emission in a small island developing state: A cointegration approach. Economics and Business Letters, 6(1), 6–13.
Frankel, J., & Rose, A. (2002). An estimate of the effect of common currencies on trade and income. The Quarterly Journal of Economics, 117(2), 437–466.
https://doi.org/10.1162/003355302753650292
Gholipour Fereidouni, H. (2013). Foreign direct investments in real estate sector and CO2 emission: Evidence from emerging economies. Management of Environmental Quality, 24(4), 463–476. https://doi.org/10.1108/MEQ-04-2012-0032
Granger, C. W. J. (1981). Some properties of time series data and their use in econometric model specification. Journal of Econometrics, 16(1), 121–130. https://doi.org/10.1016/0304-4076(81)90079-8
Grossman, G. M., & Krueger, A. B. (1991). Environmental impacts of a North American free trade agreement (National Bureau of Economic Research Working Paper No 3914). https://www.nber.org/papers/w3914
Haisheng, Y., Jia, J., Yongzhang, Z., & Shugong, W. (2005). The impact on environmental Kuznets curve by trade and foreign direct investment in China. Chinese Journal of Population Resources and Environment, 3(2), 14–19.
https://doi.org/10.1080/10042857.2005.10677410
Halkos, G. E., & Tzeremes, N. G. (2013). Carbon dioxide emissions and governance: a nonparametric analysis for the G-20. Energy Economics, 40, 110–118. https://doi.org/10.1016/j.eneco.2013.06.010
Ibrahim, M. H., & Law, S. H. (2016). Institutional Quality and CO2 Emission-Trade Relations: Evidence from Sub-Saharan Africa. South African Journal of Economics, 84(2), 323–340. https://doi.org/10.1111/saje.12095
Islam, M. A., Khan, M. A., Popp, J., Sroka, W., & Oláh, J. (2020). Financial development and foreign direct investment—The moderating role of quality institutions. Sustainability, 12(9), Article e3556. https://doi.org/10.3390/su12093556
Koçak, E., & Şarkgüneşi, A. (2018). The impact of foreign direct investment on CO 2 emissions in Turkey: new evidence from cointegration and bootstrap causality analysis. Environmental Science and Pollution Research, 25(1), 709–804. https://doi.org/10.1007/s11356-017-0468-2
Le, H. P., & Ozturk, I. (2020). The impacts of globalization, financial development, government expenditures, and institutional quality on CO
emissions in the presence of environmental Kuznets
curve. Environmental Science and Pollution Research, 27(18), 22680– 22697. https://doi.org/10.1007/s11356-020-08812-2
Hao, Y., & Liu, Y. M. (2015). Has the development of FDI and foreign trade contributed to China’s CO 2 emissions? An empirical study with provincial panel data. Natural Hazards, 76, 1079–1091. https://doi.org/10.1007/s11069-014-1534-4
Long, C., Yang, J., & Zhang, J. (2015). Institutional impact of foreign direct investment in China. World Development, 66, 31–48. https://doi.org/10.1016/j.worlddev.2014.08.001
Mujtaba, A., & Jena, P. K. (2021). Analyzing asymmetric impact of economic growth, energy use, FDI inflows, and oil prices on CO 2 emissions through NARDL approach. Environmental Science and Pollution Research, 28, 30873–30886. https://doi.org/10.1007/s11356- 021-12660-z
Nadeem, A. M., Ali, T., Khan, M. T., & Guo, Z. (2020). Relationship between inward FDI and environmental degradation for Pakistan: an exploration of pollution haven hypothesis through ARDL approach. Environmental Science and Pollution Research, 27, 15407–15425. https://doi.org/10.1007/s11356-020-08083-x
Nguyen, C. P., Nguyen, N. A., Schinckus, C., & Su, T. D. (2018). The ambivalent role of institutions in the CO2 emissions: The case of emerging countries. International Journal of Energy Economics and Policy, 8(5), 7–17.
Nguyen, T. V. H., & Cao, T. H. V. (2015). The impact of institutional quality on foreign direct investment (FDI) inflows to Vietnam (EADN Working Papers No. 86). https://www.freit.org/WorkingPapers/Papers/ForeignInvestment/FREI T1127.pdf
Omri, A., & Hadj, T. B. (2020). Foreign investment and air pollution: do good governance and technological innovation matter? Environmental Research, 185, Article e109469. https://doi.org/10.1016/j.envres.2020.109469
Omri, A., Nguyen, D. K., & Rault, C. (2014). Causal interaction between CO2 emissions, FDI, and economic growth: Evidence from dynamic simultaneous-equation models. Economic Modeling, 42, 382–389. https://doi.org/10.1016/j.econmod.2014.07.026
Ozturk, I., & Al-Mulali, U. (2015). Investigating the validity of the environmental Kuznets curve hypothesis in Cambodia. Ecological Indicators, 57, 324–330. https://doi.org/10.1016/j.ecolind.2015.05.018
Pazienza, P. (2019). The impact of FDI in the OECD manufacturing sector on CO2 emission: Evidence and policy issues. Environmental Impact Assessment Review, 77, 60–68. https://doi.org/10.1016/j.eiar.2019.04.002
Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and statistics, 61(S1), 653–670. https://doi.org/10.1111/1468- 0084.0610s1653
Salman, M., Long, X., Dauda, L., & Mensah, C. N. (2019). The impact of institutional quality on economic growth and carbon emissions: Evidence from Indonesia, South Korea and Thailand. Journal of Cleaner Production, 241, 1–15. https://doi.org/10.1016/j.jclepro.2019.118331
Sayari, N., Sari, R., & Hammoudeh, S. (2018). The impact of value added components of GDP and FDI on economic freedom in Europe. Economic Systems, 42(2), 282–294. https://doi.org/10.1016/j.ecosys.2017.03.003
Shaari, M. S., Hussain, N. E., Abdullah, H., & Kamil, S. (2014). Relationship among foreign direct investment, economic growth and CO2 emission: a panel data analysis. International Journal of Energy Economics and Policy, 4(4), 706–715.
Shahbaz, M., Balsalobre-Lorente, D., & Sinha, A. (2019). Foreign direct Investment–CO2 emissions nexus in Middle East and North African countries: Importance of biomass energy consumption. Journal of Cleaner Production, 217, 603–614. https://doi.org/10.1016/j.jclepro.2019.01.282
Stock, J. H., & Watson, M. W. (1993). A simple estimator of cointegrating vectors in higher order integrated systems. Econometrica, 61(4), 783– 820. https://doi.org/10.2307/2951763
Suliman, A. H., & Elian, M. I. (2014). Foreign direct investment, financial development, and economic growth: A cointegration model. The Journal of Developing Areas, 48(3), 219–243.
Sung, B., Song, W. Y., & Park, S. D. (2018). How foreign direct investment affects CO2 emission levels in the Chinese manufacturing industry: Evidence from panel data. Economic Systems, 42(2), 320–331. https://doi.org/10.1016/j.ecosys.2017.06.002
Tang, C. F., & Tan, B. W. (2015). The impact of energy consumption, income and foreign direct investment on carbon emissions in Vietnam. Energy, 79(C), 447–454. https://doi.org/10.1016/j.energy.2014.11.033
Tiba, S., & Omri, A. (2017). Literature survey on the relationships between energy, environment and economic growth. Renewable and Sustainable Energy Reviews, 69, 1129–1146. https://doi.org/10.1016/j.rser.2016.09.113
To, A. H., Ha, D. T. T., Nguyen, H. M., & Vo, D. H. (2019). The impact of foreign direct investment on environment degradation: evidence from emerging markets in Asia. International Journal of Environmental Research and Public Health, 16(9), Article e1636. https://doi.org/10.3390/ijerph16091636
Wawrzyniak, D., & Doryń, W. (2020). Does the quality of institutions modify the economic growth-carbon dioxide emissions nexus? Evidence from a group of emerging and developing countries. Economic Research-Ekonomska Istraživanja, 33(1), 124–
https://doi.org/10.1080/1331677X.2019.1708770
Xie, Q., Wang, X., & Cong, X. (2020). How does foreign direct investment affect CO2 emissions in emerging countries? New findings from a nonlinear panel analysis. Journal of Cleaner Production, 249, Article e119422. https://doi.org/10.1016/j.jclepro.2019.119422
Zhang, C., & Zhou, X. (2016). Does foreign direct investment lead to lower CO2 emissions? Evidence from a regional analysis in China. Renewable and Sustainable Energy Reviews, 58, 943–951. https://doi.org/10.1016/j.rser.2015.12.226
Zhu, H., Duan, L., Guo, Y., & Yu, K. (2016). The effects of FDI, economic growth and energy consumption on carbon emissions in ASEAN-5: Evidence from panel quantile regression. Economic Modelling, 58, 237–248. https://doi.org/10.1016/j.econmod.2016.05.003
Copyright (c) 2022 Arslan Tariq Rana, Iqra Shabbir, Dr Muhammad Ilyas Ansari
This work is licensed under a Creative Commons Attribution 4.0 International License.
