Skip to main content

Advertisement

SpringerLink
Log in

Is there a trade-off between financing current account deficits and environmental deterioration in developing countries? An empirical investigation for the validity of the pollution haven hypothesis

  • Research Article
  • Published:
Environmental Science and Pollution Research Aims and scope Submit manuscript

Abstract

The impact of foreign direct investment (FDI) on environmental quality has been discussed in the environmental economics literature over the last decades. Within this scope, the pollution haven hypothesis (PHH) postulates that FDI inflows can cause environmental degradation in developing countries. Using data over the period 1993–2018 for 10 developing countries with current account deficits, this paper aims to test the validity of the PHH. Therefore, the paper examines whether or not developing countries face off a trade-off between financing current account deficits and environmental deterioration. The paper employs panel data methods that consider cross-sectional dependence. The empirical findings show that foreign direct investment inflows have no impact on environment, meaning the PHH does not dominate for these countries. Hence, the findings indicate that there is no trade-off between financing current account deficits and environmental deterioration.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

Data availability

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

Notes

  1. One of the most tested hypotheses in the environmental economics literature is the environmental Kuznets curve (EKC) hypothesis of Grossman and Krueger (1991, 1995). This hypothesis posits that there may be an inverted U-shaped relationship between environmental deterioration and output, implying economic growth first increases environmental problems and then decreases them after output reaches a threshold. As none of the countries in the data set is a developed country, the paper does not examine whether the EKC hypothesis prevails for these countries.

References

  • Acharyya J (2009) FDI, growth and the environment: evidence from India on CO2 emission during the last two decades. J Econ Dev 34:43–58

    Article  Google Scholar 

  • Agarwal RN (1997) Foreign portfolio investment in some developing countries: a study of determinants and macroeconomic impact. Indian Econ Rev 32:217–229

    Google Scholar 

  • Akbostanci E, Tunc GI, Turut-Asik S (2007) Pollution haven hypothesis and the role of dirty industries in Turkey’s exports. Environ Dev Econ 12:297–322

    Article  Google Scholar 

  • 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

    Article  Google Scholar 

  • Anyanwu JC (2006) Promoting of investment in Africa. Afr Dev Rev 18:42–71

    Article  Google Scholar 

  • Baek J (2016) A new look at the FDI-income-energy-environment nexus: dynamic panel data analysis of ASEAN. Energy Policy 91:22–27

    Article  Google Scholar 

  • Bakirtas I, Cetin MA (2017) Revisiting the environmental Kuznets curve and pollution haven hypotheses: MIKTA sample. Environ Sci Pollut Res 24:18273–18283

    Article  CAS  Google Scholar 

  • Balsalobre-Lorente D, Gokmenoglu KK, Taspinar N, Cantos-Cantos JM (2019) An approach to the pollution haven and pollution halo hypotheses in MINT countries. Environ Sci Pollut Res 26:23010–23026

    Article  Google Scholar 

  • Bilgili F, Ozturk I, Kocak E, Bulut U, Pamuk Y, Mugaloglu E, Baglitas HH (2016) The influence of biomass energy consumption on CO2 emissions: a wavelet coherence approach. Environ Sci Pollut Res 23:19043–19061

    Article  CAS  Google Scholar 

  • Bulut U (2021) Environmental sustainability in Turkey: an environmental Kuznets curve estimation for ecological footprint. Int J Sustain Dev World Ecol 28:227–237

    Article  Google Scholar 

  • Bulut U, Inglesi-Lotz R (2019) Which type of energy drove industrial growth in the US from 2000 to 2018? Energy Rep 5:425–430

    Article  Google Scholar 

  • Bulut U, Ucler G, Inglesi-Lotz R (2021) Does the pollution haven hypothesis prevail in Turkey? Empirical evidence from nonlinear smooth transition models. Environ Sci Pollut Res 28:38563–38572

    Article  Google Scholar 

  • Carbaugh RJ (2009) International Economics, 12th edn. South-Western, USA

    Google Scholar 

  • Danish, Ulucak R, Khan SUD (2020) Determinants of the ecological footprint: role of renewable energy, natural resources, and urbanization. Sustain Cities Soc 54:101996

    Article  Google Scholar 

  • Destek MA, Okumus I (2019) Does pollution haven hypothesis hold in newly industrialized countries? Evidence from ecological footprint. Environ Sci Pollut Res 26:23689–23695

    Article  Google Scholar 

  • Ferreti GMM, Razin A (1998) Current account reversals and currency crises: empirical regularities. IMF Work Pap 089:1–37

  • Flood RP, Garber PM (1984) Collapsing exchange-rate regimes: some linear examples. J Int Econ 17:1–13

    Article  Google Scholar 

  • Fry MJ, Burridge P, Blanchet M (1995) Foreign direct investment, other capital flows, and current account deficits: what causes what? The World Bank Policy Res Work Pap 1527:1–21

  • Gopalan S, Ouyang A, Rajan RS (2018) Impact of Greenfield FDI versus M&A on growth and domestic investment in developing Asia. Econ Politica 35:41–70

    Article  Google Scholar 

  • Grazi F, van den Bergh JC, van Ommeren JN (2008) An empirical analysis of urban form, transport, and global warming. Energy J 29:97–122

    Article  Google Scholar 

  • Grossman GM, Krueger AB (1991) Environmental impacts of a North American free trade agreement. NBER Work Pap 3914:1–39

  • Grossman GM, Krueger AB (1995) Economic growth and the environment. Q J Econ 110:353–377

    Article  Google Scholar 

  • IMF (2010) Balance of payments manuel. https://www.imf.org/external/pubs/ft/bopman/bopman.pdf. Accessed 1 April 2021

  • Kaminsky GL (2006) Currency crises: are they all the same? J Int Money Finance 25:503–527

    Article  Google Scholar 

  • Kang JS, Shambaug JC (2016) The rise and fall of European current account deficits. Econ Policy 31:153–199

    Article  Google Scholar 

  • Kocak E, Sarkgunesi A (2018) The impact of foreign direct investment on CO2 emissions in Turkey: new evidence from cointegration and bootstrap causality analysis. Environ Sci Pollut Res 25:790–804

    Article  CAS  Google Scholar 

  • Krugman P (1979) A model of balance-of-payments crises. J Money Credit Bank 11:311–325

    Article  Google Scholar 

  • Lau L-S, Choong C-K, Eng Y-K (2014) Investigation of the environmental Kuznets curve for carbon emissions in Malaysia: Do foreign direct investment and trade matter? Energy Policy 68:490–497

    Article  Google Scholar 

  • Mert M, Boluk 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 23:21669–21681

    Article  CAS  Google Scholar 

  • Mert M, Caglar AE (2020) Testing pollution haven and pollution halo hypotheses for Turkey: a new perspective. Environ Sci Pollut Res 27:32933–32943

    Article  Google Scholar 

  • Nadeem AM, Ali T, Khan MTI, Guo Z (2020) Relationship between inward FDI and environmental degradation for Pakistan: an exploration of pollution haven hypothesis through ARDL approach. Environ Sci Pollut Res 27:15407–15425

    Article  CAS  Google Scholar 

  • OECD (1999) Foreign direct investment and the environment: from pollution havens to sustainable development. https://www.oecd.org/investment/mne/2089912.pdf. Accessed 1 February 2021

  • Ozatac N, Gokmenoglu KK, Taspinar N (2017) Testing the EKC hypothesis by considering trade openness, urbanization, and financial development: the case of Turkey. Environ Sci Pollut Res 24:16690–16701

    Article  Google Scholar 

  • Panwar NL, Kaushik SC, Kothari S (2011) Role of renewable energy sources in environmental protection: a review. Renew Sust Energ Rev 15:1513–1524

    Article  Google Scholar 

  • Pesaran MH (2004) General diagnostic tests for cross section dependence. CESifo Working Paper 1229:1–39

  • Pesaran MH (2006) Estimation and inference in large heterogeneous panels with a multifactor error structure. Econometrica 74:967–1012

    Article  Google Scholar 

  • Pesaran MH (2007) A simple panel unit root test in the presence of cross-section dependence. J Appl Econom 22:265–312

    Article  Google Scholar 

  • Pilbeam K (2006) International Finance, 3rd edn. Palgrave Macmillan, New York

    Book  Google Scholar 

  • Rafindadi AA, Muye IM, Kaita RA (2018) The effect of FDI and energy consumption on environmental pollution in predominantly resource-based economies of the GCC. Sustain Energy Technol Assess 25:126–137

    Google Scholar 

  • Sadorsky P (2014) The effect of urbanization on CO2 emissions in emerging economies. Energy Econ 41:147–153

    Article  Google Scholar 

  • Sapkota P, Bastola U (2017) Foreign direct investment, income and environmental pollution in developing countries: panel data analysis of Latin America. Energy Econ 64:206–212

    Article  Google Scholar 

  • Shahbaz M, Nasreen S, Abbas F, Anis O (2015) Does foreign direct investment impede environmental quality in high-, middle-, and low-income countries? Energy Econ 51:275–287

    Article  Google Scholar 

  • Shao Q, Wang X, Zhou Q, Balogh L (2019) Pollution haven hypothesis revisited: a comparison of the BRICS and MINT countries based on VECM approach. J Clen Prod 227:724–738

    Article  Google Scholar 

  • Solarin SA, Al-Mulali U, Musah I, Ozturk I (2017) Investigating the pollution haven hypothesis in Ghana: an empirical investigation. Energy 124:706–719

    Article  Google Scholar 

  • Terzi H, Pata UK (2020) Is the pollution haven hypothesis (PHH) valid for Turkey? Panoeconomicus 67:93–109

    Article  Google Scholar 

  • UNCTAD (2021) Statistics. https://unctad.org/statistics. Accessed 5 March 2022

  • Ur Rahman Z, Chongbo W, Ahmad M (2019) An (a)symmetric analysis of the pollution haven hypothesis in the context of Pakistan: a non-linear approach. Carbon Manag 10:227–239

    Article  CAS  Google Scholar 

  • Wang Z, Bao Y, Wen Z, Tan Q (2016) Analysis of relationship between Beijing’s environment and development based on environmental Kuznets curve. Ecol Indic 67:474–483

    Article  CAS  Google Scholar 

  • Westerlund J (2007) Testing for error correction in panel data. Oxf Bull Econ Stat 69:709–748

    Article  Google Scholar 

  • World Bank (1993) Global economic prospects and the developing countries. https://documents1.worldbank.org/curated/en/469851468781532185/pdf/multi0page.pdf. Accessed 1 March 2021

  • World Bank (2021) World Bank open data. https://data.worldbank.org/. Accessed 1 May 2021

  • Zhang C, Zhou X (2016) Does foreign direct investment lead to lower CO2 emissions? Evidence from a regional analysis in China. Renew Sust Energ Rev 58:943–951

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Economics, Faculty of Economics and Administrative Sciences, Kirsehir Ahi Evran University, Kirsehir, 40100, Turkey

    Umit Bulut, Gulbahar Ucler & Hande Aksoz-Yilmaz

  2. Institute of Social Sciences, Kirsehir Ahi Evran University, Kirsehir, 40100, Turkey

    Dila Nur Basaran

Authors
  1. Umit Bulut
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Gulbahar Ucler
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Hande Aksoz-Yilmaz
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Dila Nur Basaran
    View author publications

    You can also search for this author in PubMed Google Scholar

Contributions

Umit Bulut: conceptualization, formal analysis, methodology, project administration, writing—original draft, writing—review and editing. Hande Aksoz-Yilmaz: conceptualization, data curation, investigation, writing—original draft, writing—review and editing. Gulbahar Ucler: supervision, validation, writing—original draft. Dila Nur Basaran: data curation, validation, writing—original draft.

Corresponding author

Correspondence to Gulbahar Ucler.

Ethics declarations

Ethics approval and consent to participate

Not applicable.

Consent for publication

Not applicable.

Competing interests

The authors declare 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

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Bulut, U., Ucler, G., Aksoz-Yilmaz, H. et al. Is there a trade-off between financing current account deficits and environmental deterioration in developing countries? An empirical investigation for the validity of the pollution haven hypothesis. Environ Sci Pollut Res 29, 56090–56097 (2022). https://doi.org/10.1007/s11356-022-19819-2

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11356-022-19819-2

Keywords

Search

Navigation