Abstract
Utilizing the Environmental Kuznets Curve (EKC) model, the study examines the environmental impacts of institutional variables in their relationships with foreign direct investment (FDI) in 23 developing countries. All six elements of government indicators are tested while controlling their interaction terms with the two types of FDI, which originate from developed and developing regions. There are two important findings: first, FDI is proven to be an important channel to deliver the environmental effects of institutional qualities. Second, FDI origin factor is critical to the nature of this interactive connection. FDI from developed economies is less affected by sociopolitical factors of a host country, while FDI from developing regions reacts differently in different domestic contexts. The study highlights the importance of institutional reform in the pursuit of sustainable development in the developing world, especially when most of emerging countries are prioritizing FDI-led strategy to fuel their rapid economic growth.
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Notes
The robustness of this study are confirmed with both ways of classifications. Appendix 4 presents the detailed results of the models in the UN grouping setting. The link to the IMF country classification used to classify investor countries can be found at: https://www.imf.org/external/pubs/ft/weo/2010/02/weodata/groups.htm (World Economic Outlook Database April 2010—WEO Groups and Aggregates Information). There is no country having changed its status from developing to developed economy or vice versa during the studied period from 2001 to 2012.
Without the inclusion of the 4 EU developing countries, the estimations do not contradict the findings of this study. However, the interaction terms in Model 2 do not deliver much meaningful implication. That is because the ranges of governance indexes are too narrow to show that good or bad institutional quality can have impacts on the FDI variables in term of environmental performance. For detailed results, please contact the author.
The UN country classification used to classify investor countries is according to the World Economic Situation and Prospects 2014 report by the United Nations. There is no country having changed its status from developing to developed economy or vice versa during the studied period from 2001 to 2012.
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I would like to express the sincere gratitude to the anonymous referees whose valuable comments have greatly contributed to the improvement of this paper.
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Dang, P. Sustainability comes from within: carbon dioxide emissions, FDI origin factor and institutional qualities in developing countries. Econ Polit 36, 439–471 (2019). https://doi.org/10.1007/s40888-019-00151-x
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DOI: https://doi.org/10.1007/s40888-019-00151-x