Environmental and Resource Economics

, Volume 72, Issue 2, pp 583–607 | Cite as

Impacts of Foreign Direct Investment and Economic Development on Carbon Dioxide Emissions Across Different Population Regimes

  • Shu-Chen ChangEmail author
  • Meng-Hua Li


According to the Green Solow model, the rise or fall of emissions over time depends on a scale effect and a technique effect, and, if the latter effect is held constant, changes in population growth will influence profiles of the environmental Kuznets curve (EKC). Utilizing four alternative measures of population size as threshold variables, this paper reexamines the effect of foreign direct investment (FDI) on carbon dioxide (\(\hbox {CO}_{2}\)) emissions and further tests EKC profiles for different population sizes. Our threshold test shows a double-threshold effect on \(\hbox {CO}_{2}\) emissions, implying the existence of three population regimes: least, moderately, and most populated. Our results show that an inverted U-shaped EKC relationship exists between \(\hbox {CO}_{2}\) emissions and economic development across different population regimes, when population density and absolute population in turn are used as a threshold variable. In addition, in the least populated regime, \(\hbox {CO}_{2}\) emissions significantly converge with increasing FDI.


\(\hbox {CO}_{2 }\) emissions Economic development Foreign direct investment Population 

JEL Classification

C33 G11 Q53 

Supplementary material

10640_2018_216_MOESM1_ESM.docx (83 kb)
Supplementary material 1 (docx 83 KB)


  1. Aidt TS, Dutta J, Sena V (2008) Governance regimes, corruption and growth: theory and evidence. J Comp Econ 36:195–220Google Scholar
  2. Althauser R (1971) Multicollinearity and non-additive regression models. In: Blalock HM Jr(ed) Causal models in the social sciences. Aldine-Atherton, Chicago, pp 453–472Google Scholar
  3. Andrews DWK (1993) Tests for parameter instability and structural change with unknown change point. Econometrica 61(4):821–856Google Scholar
  4. Andrews DWK, Ploberger W (1994) Optimal tests when a nuisance parameter is present only under the alternative. Econometrica 62(6):1383–1414Google Scholar
  5. Azomahou T, Laisney F, Nguyen-Van P (2006) Economic development and CO\(_2\) emissions: a nonparametric panel approach. J Public Econ 90:1347–1363Google Scholar
  6. Baek J, Koo W (2009) A dynamics approach to the FDI-environment nexus: the case of China and India. J Int Econ Stud 13(2):87–108Google Scholar
  7. Bertinelli L, Strobl E (2005) The environmental Kuznets curve semi-parametrically revisited. Econ Lett 88:350–357Google Scholar
  8. Boserup E (1981) Population and technological change: a study of long-term trends. University of Chicago Press, Chicago, p 3Google Scholar
  9. Brock WA, Taylor MS (2010) The Green Solow model. J Econ Growth 15(2):127–153Google Scholar
  10. Caner M, Hansen BE (2004) Instrumental variable estimation of a threshold model. Econom Theory 20:813–843Google Scholar
  11. Chang S-C (2015) Threshold effect of foreign direct investment on environmental degradation. Port Econ J 14(1–3):75–102Google Scholar
  12. Chang S-C, Huang W-T (2015) The effects of foreign direct investment and economic development on carbon dioxide emissions. Econ Risk 583:483–496Google Scholar
  13. Coondoo D, Dinda S (2008) Carbon dioxide emission and income: a temporal analysis of cross-country distributional patterns. Ecol Econ 65(2):375–385Google Scholar
  14. Copeland B, Taylor S (2003) Trade, growth, and the environment. J Econ Lit 42(1):7–71Google Scholar
  15. Cropper M, Griffiths C (1994) The interaction of population growth and environmental quality. Am Econ Rev 84:250–254Google Scholar
  16. Dinda S, Coondoo D, Pal M (2000) Air quality and economic growth: an empirical study. Ecol Econ 34(3):409–423Google Scholar
  17. Friedl B, Getzner M (2003) Determinants of \(\text{ CO }_{2}\) emissions in a small open economy. Ecol Econ 45:133–148Google Scholar
  18. Galeotti M, Lanza A (1999) Richer and cleaner? A study on carbon dioxide emissions in developing countries. FEEM working paper no. 87, Fondazione Eni Enrico MatteiGoogle Scholar
  19. Grossman GM, Helpman E (1991) Quality ladders and product cycles. Quart J Econ 106(2):557–586Google Scholar
  20. Grossman GM, Krueger AB (1993) Environmental impacts of a North American free trade agreement. In: Garber P (ed) The U.S. Mexico free trade agreement. MIT Press, Cambridge, pp 165–177Google Scholar
  21. Grossman GM, Krueger AB (1995) Economic growth and the environment. Quart J Econ 110(2):353–377Google Scholar
  22. Hansen BE (1996) Inference when a nuisance parameter is not identified under the null hypothesis. Econometrica 64(2):413–430Google Scholar
  23. Hansen BE (1999) Threshold effects in non-dynamic panels: estimation, testing, and inference. J Econ 93(2):345–368Google Scholar
  24. Harbaugh W, Levinson A, Wilson DM (2002) Reexamining the empirical evidence for an environmental Kuznets curve. Rev Econ Stat 84:541–551Google Scholar
  25. Heil MT, Selden TM (2001) International trade intensity and carbon emissions: a cross-country econometric analysis. J Environ Dev 10(1):35–49Google Scholar
  26. Holtz-Eakin D, Selden TM (1995) Stoking the fires? \(\text{ CO }_{2}\) emissions and economic growth. J Public Econ 57(1):85–101Google Scholar
  27. Iwejingi SF (2011) Population growth, environmental degradation, and human health in Nigeria. Pak J Social Sci 8:187–191Google Scholar
  28. Jalil A, Mahmud S (2009) Environment Kuznets curve for \(\text{ CO }_{2}\) emissions: a cointegration analysis for China. Energy Policy 37:5167–5172Google Scholar
  29. Jayanthakumaran K, Verma R, Liu Y (2012) \(\text{ CO }_{2}\) emissions, energy consumption, trade, and income: a comparative analysis of China and India. Energy Policy 42:450–460Google Scholar
  30. Kahuthu A (2010) Economic growth and environmental degradation in a global context. Environ Dev Sustain 8:55–68Google Scholar
  31. Lantz V, Feng Q (2006) Assessing income, population, and technology impacts on \(\text{ CO }_{2}\) emissions in Canada: where’s the EKC? Ecol Econ 57:229–238Google Scholar
  32. Letchumanan R, Kodama F (2000) Reconciling the conflict between the pollution-haven hypothesis and an emerging trajectory of international technology transfer. Res Policy 29:59–79Google Scholar
  33. Levin A, Lin CF, Chu C (2002) Unit root tests in panel data: asymptotic and finite-sample properties. J Econ 108:1–24Google Scholar
  34. Liang F (2006) Does foreign direct investment harm the host country’s environment? Evidence from China. Haas School of Business, University of California, Berkeley, working paper, SeptemberGoogle Scholar
  35. Lim SJ, Menaldo V, Prakash A (2014) Foreign aid, economic globalization, and pollution. Policy Sci. Google Scholar
  36. Moomaw W, Unruh G (1997) Are environmental Kuznets curves misleading us? The case of CO\(_2\) emissions. Environ Dev Econ 2:451–464Google Scholar
  37. Morris JH, Sherman J, Mansfield ER (1986) Failures to detect moderating effects with ordinary least squares-moderated regression: some reasons and a remedy. Psychol Bull 99:282–288Google Scholar
  38. Panayotou T (1993) Empirical tests and policy analysis of environmental degradation at different stages of economic development. Working paper WP238, Technology and Employment Programme, International Labor Office, GenevaGoogle Scholar
  39. Panayotou T (1997) Demystifying the environmental Kuznets curve: turing a black box into a policy tool. Environ Dev Econ 2:465–484Google Scholar
  40. Pesaran MH (2004) General diagnostic tests for cross section dependence in panels. University of Cambridge, Cambridge working papers in economics no. 0435Google Scholar
  41. Shandra JM, London B, Whooley OP, Williamson JB (2004) International nongovernmental organizations and carbon dioxide emissions in the developing world: a quantitative, cross-national analysis. Sociol Inq 74(4):520–545Google Scholar
  42. Smith KW, Sasaki MS (1979) Decreasing multicollinearity: a method for models with multiplicative function. Sociol Methods Res 8:35–56Google Scholar
  43. Song T, Zheng T, Tong L (2008) An empirical test of the environmental Kuznets curve in China: a panel cointegration approach. China Econ Rev 19:381–392Google Scholar
  44. Stern DI, Common MS (2001) Is there an environmental Kuznets curve for sulfur? J Environ Econ Manag 41(2):162–178Google Scholar
  45. Talukdar D, Meisner CM (2001) Does the private sector help or hurt the environment? Evidence from carbon dioxide pollution in developing countries. World Dev 29(5):827–840Google Scholar
  46. Tamazian A, Rao BB (2010) Do economic, financial, and institutional developments matter for environmental degradation? Evidence from transitional economies. Energy Econ 32(1):137–145Google Scholar
  47. Tamazian A, Chousa JP, Vadlamannati KC (2009) Does higher economic and financial development lead to environmental degradation: evidence from BRIC countries. Energy Policy 37:246–253Google Scholar
  48. Vehmas J, Kaivo-Oja J, Luukkanen J (2003) Global trends of linking environmental stress and economic growth: total primary energy supply and CO\(_2\) emissions in the European Union, Japan, USA, China, India and Brazil. Finland Futures Research Centre, Turku School of Economics and Business Administration, TurkuGoogle Scholar
  49. Vincent J (1998) Environment and development in a resource-rich economy: Malaysia under the new economic policy. Harvard University Press, CambridgeGoogle Scholar
  50. WDI (2007) World development indicators 2007. World Bank, Washington, DCGoogle Scholar
  51. Xing Y, Kolstad C (2002) Do lax environmental regulations attract foreign investment? Environ Resour Econ 21(1):1–22Google Scholar

Copyright information

© Springer Science+Business Media B.V., part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of Business AdministrationNational Formosa UniversityHuweiTaiwan
  2. 2.Department of Industrial ManagementNational Formosa UniversityHuweiTaiwan

Personalised recommendations