Abstract
This study examines the impact of foreign direct investment (FDI) on environmental degradation by keeping in view the role of institutional quality (IQ) in the South Asian region. Second-generational unit root test is used to address the issue of cross-sectional dependency. Mixed order of integration enabled us to use panel autoregressive distributed lag (ARDL) method to investigate short-run and long-run association. Moreover, this study also employs Granger causality test to explore causalities among the selected variables. Empirical results reveal that FDI has a positive and statistically significant effect on environmental degradation. Institutional quality is measured as rule of law has insignificant impact on ecological footprint both in short run as well as long run. However, government stability decreases environmental degradation while corruption enhances environmental hazards tremendously. This study also supports environmental Kuznets curve (EKC) for the South Asian countries. This study emphasized the role of political institutions in environmental degradation. South Asian countries must focus on the implementation of environmental laws and regulations by improving the quality of institutions to achieve the goal of sustainable development.
Similar content being viewed by others
References
Abdouli M, Kamoun O, Hamdi B (2018) The impact of economic growth, population density, and FDI inflows on CO2 emissions in BRICTS countries: does the Kuznets curve exist? Empir Econ 54(4):1717–1742
Abid M (2016) Impact of economic, financial, and institutional factors on CO2 emissions: evidence from sub-Saharan Africa economies. Util Policy 41:85–94
Ajide KB, Adeniyi O (2010) FDI and the environment in developing economies: evidence from Nigeria. Environ Res J 4(4):291–297
Aliyu MA (2005) Foreign direct investment and the environment: pollution haven hypothesis revisited. In: Eight Annual Conference on Global Economic Analysis, Lübeck, Germany
Al-Mulali U, Ozturk I (2015) The effect of energy consumption, urbanization, trade openness, industrial output, and the political stability on the environmental degradation in the MENA (Middle East and North African) region. Energy 84:382–389
Al-Mulali U, Tang CF (2013) Investigating the validity of pollution haven hypothesis in the gulf cooperation council (GCC) countries. Energy Policy 60:813–819
Álvarez-Herránz A, Balsalobre D, Cantos JM, Shahbaz M (2017) Energy innovations-GHG emissions nexus: fresh empirical evidence from OECD countries. Energy Policy 101:90–100
Anwar S, Nguyen LP (2010) Foreign direct investment and economic growth in Vietnam. Asia Pac Bus Rev 16(1–2):183–202
Apergis N, Ozturk I (2015) Testing environmental Kuznets curve hypothesis in Asian countries. Ecol Indic 52:16–22
Azman-Saini WNW, Law SH, Ahmad AH (2010) FDI and economic growth: new evidence on the role of financial markets. Econ Lett 107(2):211–213
Baek J (2016) A new look at the FDI–income–energy–environment nexus: dynamic panel data analysis of ASEAN. Energy Policy 91:22–27
Balsalobre D, Shahbaz M, Roubaud D, Farhani S (2018) How economic growth, renewable electricity and natural resources contribute to CO2 emissions? Energy Policy 113:356–367
Batten JA, Vo XV (2009) An analysis of the relationship between foreign direct investment and economic growth. Appl Econ 41(13):1621–1641
Bilgili F, Koçak E, Bulut Ü (2016) The dynamic impact of renewable energy consumption on CO2 emissions: a revisited environmental Kuznets curve approach. Renew Sustain Energy Rev 54:838–845
Buitenzorgy M, Mol AP (2011) Does democracy lead to a better environment? Deforestation and the democratic transition peak. Environ Resour Econ 48(1):59–70
Chandran VGR, Tang CF (2013) The impacts of transport energy consumption, foreign direct investment and income on CO2 emissions in ASEAN-5 economies. Renew Sustain Energy Rev 24:445–453
Charfeddine L (2017) The impact of energy consumption and economic development on ecological footprint and CO2 emissions: evidence from a Markov switching equilibrium correction model. Energy Econ 65:355–374
Dasgupta S, De Cian E (2016) Institutions and the environment: existing evidence and future directions. In: MITP: Mitigation, Innovation and Transformation Pathways 240747. Eni Enrico Mattei (FEEM), Fondazione
Dinda S (2004) Environmental Kuznets curve hypothesis: a survey. Ecol Econ 49(4):431–455
Figge L, Oebels K, Offermans A (2017) The effects of globalization on ecological footprints: an empirical analysis. Environ Dev Sustain 19:863–876
Gökmenoğlu K, Taspinar N (2016) The relationship between CO2 emissions, energy consumption, economic growth and FDI: the case of Turkey. J Int Trade Econ Dev 25(5):706–723
Grossman GM, Krueger AB (1991) Environmental impacts of a north American free trade agreement. NBER, Working Paper Series No 3914, 1–57
Hao Y, Liu YM (2015) Has the development of FDI and foreign trade contributed to China’s CO2 emissions? An empirical study with provincial panel data. Nat Hazards 76(2):1079–1091
Hassan ST, Xia E, Khan NH, Shah SMA (2019) Economic growth, natural resources, and ecological footprint: evidence from Pakistan. Environ Sci Pollut Res 26(3):2929–2938
Heidari H, Turan KS, Saeidpour L (2015) Economic growth, CO2 emissions, and energy consumption in the five ASEAN countries. Int J Electr Power Energy Syst 64:785–791
Hermes N, Lensink R (2003) Foreign direct investment, financial development and economic growth. J Dev Stud 40(1):142–163
IPCC (Intergovernmental Panel on Climate Change) (2014) Climate change 2014: the physical science basis. In: Stocker TF et al (eds) Contribution of working group I to the sixth assessment report of the IPCC. IPCC, Geneva
Jalil A, Feridun M (2011) The impact of growth, energy and financial development on the environment in China: a cointegration analysis. Energy Econ 33(2):284–291
Jalil A, Mahmud SF (2009) Environment Kuznets curve for CO2 emissions: a cointegration analysis for China. Energy Policy 37(12):5167–5172
Jaunky VC (2011) The CO2 emissions-income nexus: evidence from rich countries. Energy Policy 39:1228–1240
Javid M, Sharif F (2016) Environmental Kuznets curve and financial development in Pakistan. Renew Sustain Energy Rev 54:406–414
Keho Y (2015) Is foreign direct investment good or bad for the environment? Times series evidence from ECOWAS countries. Econ Bull 35(3):1916–1927
Laegreid OM, Povitkina M (2018) Do political institutions moderate the GDP-CO2 relationship? Ecol Econ 145:441–450
Lan J, Kakinaka M, Huang X (2012) Foreign direct investment, human capital and environmental pollution in China. Environ Resour Econ 51(2):255–275
Lau LS, Choong CK, Eng YK (2014) Investigation of the environmental Kuznets curve for carbon emissions in Malaysia: do foreign direct investment and trade matter? Energy Policy 68:490–497
Lee JW (2013) The contribution of foreign direct investment to clean energy use, carbon emissions and economic growth. Energy Policy 55:483–489
Leitao A (2010) Corruption and the environmental Kuznets curve: empirical evidence for sulfur. Ecol Econ 69(11):2191–2201
Liu K, Lin B (2019) Research on influencing factors of environmental pollution in China: a spatial econometric analysis. J Clean Prod 206:356–364
Mert M, Bölük G (2016) Do foreign direct investment and renewable energy consumption affect the CO2 emissions? New evidence from a panel ARDL approach to Kyoto Annex countries. Environ Sci Pollut Res 23(21):21669–21681
Mrabet Z, Alsamara M (2017) Testing the Kuznets curve hypothesis for Qatar: A comparison between carbon dioxide and ecological footprint. Renew Sust Energ Rev 70:1366–1375
Mrabet Z, AlSamara M, Hezam JS (2017) The impact of economic development on environmental degradation in Qatar. Environ Ecol Stat 24:7–38
Munir K, Riaz N (2020) Asymetric impact of energy consumption on environmental degradation: evidence from Australia, China, and USA. Environ Sci Pollut Res 27:11749–11759. https://doi.org/10.1007/s11356-020-07777-6
Nguyen AN, Nguyen T (2007) Foreign direct investment in Vietnam: an overview and analysis of the determination of spatial distribution. Working Paper 1921, Development and Polices Research Center, Hanoi
Omri A, Nguyen DK, Rault C (2014) Causal interactions between CO2 emissions, FDI, and economic growth: evidence from dynamic simultaneous-equation models. Econ Model 42:382–389
Ozturk I, Acaravci A (2010) CO2 emissions, energy consumption and economic growth in Turkey. Renew Sust Energ Rev 14(9):3220–3225
Ozturk I, Acaravci A (2013) The long-run and causal analysis of energy, growth, openness and financial development on carbon missions in Turkey. Energy Econ 36:262–267
Ozturk I, Al-Mulali U, Saboori B (2016) Investigating the environmental Kuznets curve hypothesis: the role of tourism and ecological footprint. Environ Sci Pollut Res 23:1916–1928
Panayotou T (1993) Empirical tests and policy analysis of environmental degradation at different stages of economic development, working paper WP238, Technology and Employment Program, Geneva: International Labor Office
Pedroni P (2001) Fully modified OLS for heterogeneous cointegrated panels. In: Baltagi BH, Fomby TB, Hill RC (eds) Nonstationary Panels, Panel Cointegration, and Dynamic Panels; Advances in Econometrics, vol 15. Emerald Group Publishing Limited, Bingley, pp 93–130
Pesaran MH, Smith R (1995) Estimating long-run relationships from dynamic heterogeneous panels. J Econ 68(1):79–113
Pesaran MH, Shin Y, Smith RP (1999) Pooled mean group estimation of dynamic heterogeneous panels. J Am Stat Assoc 94(446):621–634
Pesaran MH, Shin Y, Smith RJ (2001) Bounds test approaches to the analysis of level relationships. J Appl Econ 16:289–332
Reiter SL, Steensma HK (2010) Human development and foreign direct investment in developing countries: the influence of FDI policy and corruption. World Dev 38(12):1678–1691
Sabir S, Gorus MS (2019) The impact of globalization on ecological Footprint: Empirical Evidence from the South Asian Countries. Environ Sci Pollut Res. https://doi.org/10.1007/s11356-019-06458-3
Sabir S, Rafique A, Abbas K (2019) Institutions and FDI: evidence from developed and developing countries. Financ Innov 5(8):1–20
Saboori B, Sulaiman J, Mohd S (2012) Economic growth and CO2 emissions in Malaysia: a cointegration analysis of the environmental Kuznets curve. Energy Policy 51:184–191
Seker F, Ertugrul HM, Cetin M (2015) The impact of foreign direct investment on environmental quality: a bounds testing and causality analysis for Turkey. Renew Sustain Energy Rev 52:347–356
Shaari MS, Hussain NE, Abdullah H, Kamil S (2014) Relationship among foreign direct investment, economic growth and CO2 emission: a panel data analysis. Int J Energy Econ Policy 4(4):706–715
Shahbaz M, Sinha A (2019) Environmental Kuznets curve for CO2 emissions: a literature survey. J Econ Stud 46(1):106–168
Shahbaz M, Mallick H, Mahalik MK, Loganathan N (2015) Does globalization impede environmental quality in India? Ecol Indic 52:379–393
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. J Clean Prod 217:603–614
Soytas U, Sari R (2003) Energy consumption and GDP: causality relationship in G-7 countries and emerging markets. Energy Econ 25:33–37
Soytas U, Sari R (2009) Energy consumption, economic growth and carbon emissions: challenges faced by an EU candidate member. Ecol Econ 68:1667–1675
Stern DI (2003) The rise and fall of the environmental Kuznets curve the rise and fall of the environmental Kuznets curve, Working Papers in Economics. New York
Stretesky PB, Lynch MJ (2009) A cross-national study of the association between per capita carbon dioxide emissions and exports to the United States. Soc Sci Res 38(1):239–250
Suri V, Chapman D (1998) Economic growth, trade and the environment: implications for the environmental Kuznets curve. Ecol Econ 25:195e208
Tamazian A, Rao BB (2010) Do economic, financial and institutional developments matter for environmental degradation? Evidence from transitional economies. Energy Econ 32(1):137–145
Tamazian A, Chousa JP, Vadlamannati KC (2009) Does higher economic and financial development lead to environmental degradation: evidence from BRIC countries? Energy Policy 37(1):246–253
Tang CF, Tan BW (2015) The impact of energy consumption, income and foreign direct investment on carbon dioxide emissions in Vietnam. Energy 79:447–454
Tsurumi T, Managi S (2010) Decomposition of the environmental Kuznets curve: scale, technique, and composition effects. Environ Econ Policy Stud 11(1):19–36
Uddin GA, Salahuddin M, Alam K, Gow J (2017) Ecological footprint and real income: panel data evidence from the 27 highest emitting countries. Ecol Indic 77:166–175
Ulucak R, Bilgili F (2018) A reinvestigation of EKC model by ecological footprint measurement for high, middle and low income countries. J Clean Prod 188:144-157
Wang Y, Kang L, Wu X, Xiao Y (2013) Estimating the environmental Kuznets curve for ecological footprint at the global level: a spatial econometric approach. Ecol Indic 34:15–21
Welsch H (2004) Corruption, growth, and the environment: a cross-country analysis. Environ Dev Econ 9:663–693
Yıldırım E (2014) Energy use, CO2 emission and foreign direct investment: is there any inconsistence between causal relations? Front Energy 8(3):269–278
Zhang C, Zhou X (2016) Does foreign direct investment lead to lower CO2 emissions? Evidence from a regional analysis in China. Renew Sustain Energy Rev 58:943–951
Author information
Authors and Affiliations
Contributions
Samina Sabir has major contribution in all the sections of this article while Unbreen Qayyum and Tariq Majeed assisted in refining research idea by working over literature review and methodology.
Corresponding author
Ethics declarations
Conflict of interest
The authors declare that they have no competing interests.
Additional information
Responsible editor: Nicholas Apergis
Publisher’s note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
About this article
Cite this article
Sabir, S., Qayyum, U. & Majeed, T. FDI and environmental degradation: the role of political institutions in South Asian countries. Environ Sci Pollut Res 27, 32544–32553 (2020). https://doi.org/10.1007/s11356-020-09464-y
Received:
Accepted:
Published:
Issue Date:
DOI: https://doi.org/10.1007/s11356-020-09464-y