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Examining foreign direct investment and environmental pollution linkage in Asia

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Abstract

This study investigated the causal linkage between environmental pollution by carbon dioxide (CO2) emissions and net foreign direct investment (FDI), along with some other variables, namely economic growth by real per capita income and trade openness, using balanced annual data of 17 countries from Asia for the period from 1980 to 2014. Panel cointegration tests confirm the long-run association among the variables. After checking the panel data for stationarity properties, the method panel fully modified ordinary least squares (FMOLS) is implemented. The FMOLS estimates on CO2 emission model reveal that inward FDI has a significantly positive impact on environmental pollution, supporting the pollution haven hypothesis (PHH). Likewise, FDI model results imply that CO2 emissions represent environmental pollution; economic growth and trade openness are the pivotal determinants of FDI. Panel causality results suggest bidirectional linkages between CO2 emissions and inward FDI. Empirical findings suggest that economic policy reforms are required to channelise foreign capital inflows to a more environmentally healthy direction. The governments of Asian countries should chalk out policies on FDI inflows and the environment in order to achieve sustainable economic growth and development.

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Notes

  1. The PHH refers to “the migration or displacement of ‘dirty’ industries from the developed regions to the developing regions”. (Cole 2004, p. 71).

  2. Studied some other variables including energy consumption, financial development, urbanisation, population and institutional factors.

  3. List of countries used: Australia, Bangladesh, China, Indonesia, India, Fiji, Islamic Rep. of Iran, Japan, Korea, Rep., Pakistan, Malaysia, Maldives, Sri Lanka, Nepal, the Philippines, Singapore and Thailand.

  4. See Shahbaz et al. (2015) and Azam et al. (2016) for more statistical details about the panel cointegration tests, estimating cointegration regression and causality test.

  5. See Othman and Masih (2015) and Behringer et al. (2016).

  6. Azam (2019a, b) also used the panel FMOLS estimator based on its advantages.

  7. See for more detail Khwaja et al. (2012); Jin et al. (2016); and World Bank (2017).

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Authors and Affiliations

  1. Department of Economics, Faculty of Business and Economics, Abdul Wali Khan University Mardan, Mardan, Pakistan

    Muhammad Azam Khan

  2. Cag University, Adana-Mersin yolu uzeri, Yenice, 33800, Mersin, Turkey

    Ilhan Ozturk

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  1. Muhammad Azam Khan
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Correspondence to Ilhan Ozturk.

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Khan, M.A., Ozturk, I. Examining foreign direct investment and environmental pollution linkage in Asia. Environ Sci Pollut Res 27, 7244–7255 (2020). https://doi.org/10.1007/s11356-019-07387-x

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