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The relationship between FDI, CO2 emissions, and energy consumption in Asia-Pacific economic cooperation countries

  • Applied Economics of Energy and Environment in Sustainability
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Abstract

This paper investigates the relationship between CO2 emissions, energy consumption, economic growth, and foreign direct investment for a sample of Asia-Pacific Economic Cooperation Countries (APEC) countries from 1981:Q1 to 2021:Q1 employing panel data methodology. We identify cross-sectional dependence and hence utilize the cross-sectional augmented Dickey-Fuller panel unit root test for appropriate estimation. The cointegration test developed by Westerlund (2008) reveals a long-run equilibrium between CO2 emissions, energy consumption, economic growth, and foreign direct investment. Long-run parameter estimates based on Common Correlated Effect Mean Group indicate that an increase in FDI inflows has a negative impact on air quality, supporting the pollution haven hypothesis. The cointegration test results also show that the impact of Gross Domestic Product (GDP) on CO2 emissions varies by country in the estimation sample. In contrast to the mixed evidence on the effects of other variables, the increase in energy consumption is positively and significantly affecting CO2 emissions in all APEC countries. Emirmahmutoglu and Kose Econ Model 28:870-876, (2011)’s panel causality test results show a bidirectional relationship between FDI and CO2 emissions in Japan. Furthermore, there is a bidirectional causal relationship between GDP and energy consumption in Australia, China, Japan, and Singapore. Overall, empirical evidence suggests that APEC countries should adhere to strict regulations and invest in environmental-friendly clean technologies to attract foreign direct investment.

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Notes

  1. See Huang et al. (2008) for a detailed empirical literature review on causal relationship between economic growth and energy consumption.

  2. Tiba and Omri (2017) conduct a detailed investigation into causal relationship between economic growth, energy consumption and carbon emissions.

  3. The optimum number of lags ki is selected based on Akaike and Schwarz information criterions.

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Authors and Affiliations

  1. Department of Economics, Erzincan Binali Yildirim University, Yalnızbag Yerleskesi, Erzincan, Turkey

    Esra Balli

  2. Department of Econometrics, Cukurova University, Adana, Turkey

    Ciler Sigeze

  3. Department of Economics, Cankiri Karatekin University, Cankiri, Turkey

    Mehmet Sedat Ugur

  4. Department of Economics, Ege University, Izmir, Turkey

    Abdurrahman Nazif Çatık

Authors
  1. Esra Balli
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  2. Ciler Sigeze
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  3. Mehmet Sedat Ugur
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  4. Abdurrahman Nazif Çatık
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Contributions

EB: data curation, estimation of unit root tests, interpretation of empirical results, editing of the manuscript; CS: review of literature, data curation, editing of the manuscript; MSU: review of literature, drafting the article, editing of the manuscript; ANC: data curation, estimation of the model, interpretation of empirical results, editing of the manuscript.

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Correspondence to Esra Balli.

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Appendice

Appendice

Table 11

Table 11 Selected studies on the causality between economic growth, energy consumption, and CO2 emissions
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Table 12

Table 12 Selected studies on the causality between foreign direct investments and economic growth, energy consumption and CO2 emission
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Balli, E., Sigeze, C., Ugur, M.S. et al. The relationship between FDI, CO2 emissions, and energy consumption in Asia-Pacific economic cooperation countries. Environ Sci Pollut Res 30, 42845–42862 (2023). https://doi.org/10.1007/s11356-021-17494-3

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