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Causality analysis of CO2 emissions, foreign direct investment, gross domestic product, and energy consumption: empirical evidence from South Asian Association for Regional Cooperation (SAARC) countries

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Abstract

Over the period 1980–2016, this study looks into the causal relations between carbon dioxide (CO2) emissions, energy consumption (EC), foreign direct investment (FDI), and gross domestic product (GDP) in five South Asian countries (Bangladesh, India, Nepal, Pakistan, and Sri Lanka). To achieve the research objectives, panel unit root tests, panel co-integration, autoregressive distributed lag model, and Granger causality tests are used. In the long run, GDP has a positive impact on CO2 emissions, while squared GDP has a negative impact, confirming the framework of the environmental Kuznets curve (EKC) in Pakistan and Sri Lanka. However, in the short run along with these two countries, Bangladesh also confirms the EKC hypothesis. Among these five countries, Bangladesh and Nepal support the pollution haven hypothesis, but India, Pakistan, and Sri Lanka support the FDI halo hypothesis. The EC has a large positive impact on CO2 emissions across five countries. In the long run, the Granger causality test confirms one-way causation from EC to CO2 emissions and bidirectional causality of FDI and CO2. These countries might encourage clean energy technology through FDI without jeopardizing GDP and environmental quality. The findings of the study provide a guideline for these countries to reduce CO2 emissions, achieve a long-term green GDP, and combat global warming.

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Data availability

The datasets used during the current study are available from the corresponding author on reasonable grounds and request.

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Authors and Affiliations

  1. Environmental Economics and Natural Resource Group, Wageningen University and Research (WUR), Wageningen, 6700 EW, The Netherlands

    Md. Nur Mozahid

  2. Department of Agricultural Economics and Policy, Sylhet Agricultural University, Sylhet, 3100, Bangladesh

    Md. Nur Mozahid

  3. Department of Agricultural Statistics, Sylhet Agricultural University, Sylhet, 3100, Bangladesh

    Sharmin Akter

  4. Department of Economics, Pabna Government Edward College, Pabna, 6600, Bangladesh

    Md. Hafiz Iqbal

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  1. Md. Nur Mozahid
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  3. Md. Hafiz Iqbal
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Contributions

All authors contributed to the study’s conception and design. Material preparation, data collection, and analysis were performed by Md. Nur Mozahid and Sharmin Akter. The first draft of the manuscript was written by Md. Nur Mozahid, and the final draft of the manuscript was written by Md. Hafiz Iqbal. All authors read and approved the final manuscript.

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Nur Mozahid, M., Akter, S. & Hafiz Iqbal, M. Causality analysis of CO2 emissions, foreign direct investment, gross domestic product, and energy consumption: empirical evidence from South Asian Association for Regional Cooperation (SAARC) countries. Environ Sci Pollut Res 29, 65684–65698 (2022). https://doi.org/10.1007/s11356-022-20362-3

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