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Foreign direct investment, foreign aid, and CO2 emissions in Asian economies: does governance matter?

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Abstract

Due to emanating global warming, all countries of the world are focusing on policy development regarding mitigation of environmental pollution. However, there exist multiple factors that interrupt such environmental protection actions both positively and negatively. Following this, this study aims to explore the dynamical impact of governance on the relationship between foreign direct investment, foreign aid, and CO2 emissions. We use the recent data covering the period of 2001–2019 of Asian economies and apply estimated generalized least square, two-stage least squares, system generalized method of moments, and fully modified ordinary least square models to estimate the regression. The implication of such models helps to quantify the unbiased regression by treating multiple econometric problems. The statistical outcomes of these models suggest that inflow of foreign direct investment (FDI) enhances the CO2 emissions due to more industrial proliferation. Conversely, foreign aid and governance mitigate the CO2 emissions as foreign aid promotes development of industrial technology which causes low CO2 emissions. Similarly, the better governance practices restrict the industrial sector from emitting of excessive CO2. However, receipts of foreign aid deteriorate the governance situations which further channelize the deprivation of government control on industrial sector regarding CO2 emissions. Conversely, FDI strengthens the governance situation which further permeates negative CO2 emissions. The findings of the study suggest that a country can impede the CO2 emissions caused by inflow of FDI via proper governance application. This study adds new thoughts regarding governance role to manage the externalities of FDI and foreign aid.

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Data Availability

Data that were used in formal analysis do not require any formal consent and can be provided on demand.

Notes

  1. https://www.iea.org/reports/global-energy-co2-status-report-2019.

  2. https://databank.worldbank.org/source/world-development-indicators.

  3. http://info.worldbank.org/governance/wgi/.

  4. Data that support the findings of this study are openly available at World Development Indicators, and World Governance Indicators, The World Bank. It is an authorized institution that provides statistical information on variables of the study.

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Funding

This study is funded by the “National Natural Science Foundation of China” under grant number 72076174.

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Authors and Affiliations

  1. School of Economics and Finance, Xi’an Jiaotong University, Xi’an, Shaanxi, People’s Republic of China

    Umar Farooq

Authors
  1. Umar Farooq
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Contributions

UF has leading contribution in the conceptualization, formal analysis, and write-up of the paper. All other authors contribute equally to preparation of the final manuscript.

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Correspondence to Umar Farooq.

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Ethics approval

I (Umar Farooq) hereby confirmed that the paper is solely submitted to this journal and not under the publication process in any other journal.

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In this research, no human being/animals are involved in direct research or observation. Analysis is purely based upon secondary data available on different data sites.

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We hereby grant the consent and acknowledge that the paper should be sent for peer review or any other publication process required by the journal.

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The authors declare no competing interests.

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Responsible Editor: Nicholas Apergis

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Highlights

This study mainly highlights the following factors.

• Exploring the effectiveness of FDI, foreign aid, and governance in CO2 emissions.

• Individually, FDI has positive while foreign aid and governance have negative influence on CO2 emissions.

• By exercising the governance, adversities of FDI can be mitigated regarding CO2 emissions.

• Foreign aid deteriorates the local governance conditions and results in more CO2 emissions.

• The statistical findings robust the notions of Pollution Halo Hypothesis and Pollution Haven Hypothesis in Asian market.

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Appendix

Table 12 Details of countries
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Farooq, . Foreign direct investment, foreign aid, and CO2 emissions in Asian economies: does governance matter?. Environ Sci Pollut Res 29, 7532–7547 (2022). https://doi.org/10.1007/s11356-021-16115-3

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  • DOI: https://doi.org/10.1007/s11356-021-16115-3

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