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The capital investment channel of environmental improvement: evidence from BRICS

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Abstract

This study focuses on the channel for improving environmental quality in Brazil, Russia, India, China and South Africa (BRICS). Hence, we interact non-renewable electricity consumption with capital investment to determine the mediating role of capital investment in the nexus between electricity consumption and carbon emission in BRICS. This study applies the fully modified and the dynamic ordinary least squares techniques to conduct this scientific enquiry, and the result suggests that electricity consumption and growth positively and significantly enhance the level of emissions, while capital investment significantly reduces the level of emissions in BRICS. Also, capital investment interacts with non-renewable electricity consumption to improve environmental quality in both approaches employed, thereby reversing the earlier increase in emissions caused by electricity consumption. In addition, we confirm the proposition of the environmental Kuznets curve in BRICS and conclude that capital investment is an important channel for improving environmental quality.

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Fig. 1

Source: Authors’ Computation (2017)

Fig. 2

Source: Authors’ Computation from WDI (2017)

Fig. 3

Source: Authors’ computation from WDI (2017)

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Notes

  1. The Pollution haven hypothesis opines that to set up international subsidiaries, firms always search for countries where they can easily operate at the lowest possible costs either in terms of obtaining cheap resources or in terms of circumventing the payment of carbon tax.

  2. Lax environmental laws: This is a situation whereby a country’s environmental policies are either poorly implemented or do not exist at all. This can make such country become a haven for environmental pollution.

  3. Porter hypothesis was articulated by Michael Porter in 1995, and it suggests that a tight environmental regulation can help to stimulate innovative consciousness in a country and induce efficiency needed for generating commercial competitiveness.

  4. Pollution halo theory reveals that carbon emissions can be reduced through the transfer of advanced technology triggered by foreign direct investment to host countries.

  5. The Paris Agreement is built on the United Nations Framework Convention on Climate Change (known as “the Convention”. The Convention encourages every nation to participate in the common goal of battling climate change and keep world temperature below 2 °C and further strive to lower future temperature increases well below 1.5 °C.

  6. Copenhagen Accord provided a document drafted by the USA and agreed on by other 140 countries. In the Accord, emissions reduction targets for 2020 were set and mitigation actions were also arrived at for developing countries.

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  1. Department of Economics, Faculty of Social Sciences, University of Lagos, Akoka, Lagos, Nigeria

    Ekundayo P. Mesagan, Wakeel A. Isola & Kazeem B. Ajide

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  1. Ekundayo P. Mesagan
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Mesagan, E.P., Isola, W.A. & Ajide, K.B. The capital investment channel of environmental improvement: evidence from BRICS. Environ Dev Sustain 21, 1561–1582 (2019). https://doi.org/10.1007/s10668-018-0110-6

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