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Do foreign direct investment and renewable energy consumption affect the CO2 emissions? New evidence from a panel ARDL approach to Kyoto Annex countries

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Abstract

This study examines the impact of foreign direct investment (FDI) and the potential of renewable energy consumption on carbon dioxide (CO2) emissions in 21 Kyoto countries using an unbalanced panel data. For this purpose, Environmental Kuznets Curve (EKC) hypothesis was tested using panel cointegration analysis. Panel causality tests show that there are significant long-run causalities from the variables to carbon emissions, renewable energy consumption, fossil fuel energy consumption and inflow foreign direct investments. The results of our model support the pollution haloes hypothesis which states that FDI brings in clean technology and improves the environmental standards. However, an inverted U-shaped relationship (EKC) was not supported by the estimated model for the 21 Kyoto countries. This means that economic growth cannot ensure environmental protection itself or environmental goals cannot await economic growth. Another important finding is that renewable energy consumption decreases carbon emissions. Based on the empirical results, some important policy implications emerge. Kyoto countries should stimulate the FDI inflows and usage of renewable energy consumption to mitigate the air pollution and meet the emission targets. This paper provides new insights into environment and energy policies through FDI inclusion.

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  1. Department of Econometrics, Akdeniz University, Dumlupinar Bulvari, Kampus, 07058, Antalya, Turkey

    Mehmet Mert

  2. Department of Economics, Akdeniz University, Dumlupinar Bulvari, Kampus, 07058, Antalya, Turkey

    Gülden Bölük

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  1. Mehmet Mert
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Table 7 Kyoto countries and data periods analysed
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Mert, M., Bölük, G. 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 (2016). https://doi.org/10.1007/s11356-016-7413-7

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