Advertisement

Economia Politica

, Volume 36, Issue 2, pp 439–471 | Cite as

Sustainability comes from within: carbon dioxide emissions, FDI origin factor and institutional qualities in developing countries

  • Phuong Thao DangEmail author
Original Paper
  • 19 Downloads

Abstract

Utilizing the Environmental Kuznets Curve (EKC) model, the study examines the environmental impacts of institutional variables in their relationships with foreign direct investment (FDI) in 23 developing countries. All six elements of government indicators are tested while controlling their interaction terms with the two types of FDI, which originate from developed and developing regions. There are two important findings: first, FDI is proven to be an important channel to deliver the environmental effects of institutional qualities. Second, FDI origin factor is critical to the nature of this interactive connection. FDI from developed economies is less affected by sociopolitical factors of a host country, while FDI from developing regions reacts differently in different domestic contexts. The study highlights the importance of institutional reform in the pursuit of sustainable development in the developing world, especially when most of emerging countries are prioritizing FDI-led strategy to fuel their rapid economic growth.

Keywords

EKC FDI FDI origin factor Government indicators Institutional variables Policy 

JEL classification

F21 O44 Q56 

Notes

Acknowledgements

I would like to express the sincere gratitude to the anonymous referees whose valuable comments have greatly contributed to the improvement of this paper.

References

  1. Ahmed, K., & Long, W. (2012). Environmental Kuznets curve and pakistan: an empirical analysis. Procedia Economics and Finance, 1, 4–13.  https://doi.org/10.1016/S2212-5671(12)00003-2.Google Scholar
  2. Almeida, T. A. N., & García-Sánchez, I.-M. (2017). Sociopolitical and economic elements to explain the environmental performance of countries. Environmental Science and Pollution Research, 24(3), 3006–3026.  https://doi.org/10.1007/s11356-016-8061-7.Google Scholar
  3. Al-Mulali, U., & Ozturk, I. (2015). The effect of energy consumption, urbanization, trade openness, industrial output, and the political stability on the environmental degradation in the MENA (Middle East and North African) region. Energy, 84, 382–389.  https://doi.org/10.1016/j.energy.2015.03.004.Google Scholar
  4. Apergis, N., & Ozturk, I. (2015). Testing environmental Kuznets curve hypothesis in Asian countries. Ecological Indicators, 52, 16–22.  https://doi.org/10.1016/j.ecolind.2014.11.026.Google Scholar
  5. Asiedu, E. (2006). Foreign direct investment in Africa: the role of natural resources, market size, government policy, institutions and political instability. The World Economy, 29(1), 63–77.  https://doi.org/10.1111/j.1467-9701.2006.00758.x.Google Scholar
  6. Asiedu, E., & Lien, D. (2011). Democracy, foreign direct investment and natural resources. Journal of International Economics, 84(1), 99–111.  https://doi.org/10.1016/j.jinteco.2010.12.001.Google Scholar
  7. Assa, B. S. K. (2018). Foreign direct investment, bad governance and forest resources degradation: evidence in Sub-Saharan Africa. Economia Politica, 35(1), 107–125.  https://doi.org/10.1007/s40888-017-0086-y.Google Scholar
  8. Blanco, L., Gonzalez, F., & Ruiz, I. (2011). The impact of FDI on CO2 emissions in Latin America. School of Public Policy Working Papers. http://digitalcommons.pepperdine.edu/sppworkingpapers/28
  9. Blonigen, B. A., & Wang, M. (2004). Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies (Working Paper No. 10378). National Bureau of Economic Research.  https://doi.org/10.3386/w10378
  10. Bo, S. (2011). A literature survey on environmental Kuznets curve. Energy Procedia, 5, 1322–1325.  https://doi.org/10.1016/j.egypro.2011.03.229.Google Scholar
  11. Buchanan, B. G., Le, Q. V., & Rishi, M. (2012). Foreign direct investment and institutional quality: Some empirical evidence. International Review of Financial Analysis, 21(Supplement C), 81–89.  https://doi.org/10.1016/j.irfa.2011.10.001.Google Scholar
  12. Busse, M., & Hefeker, C. (2007). Political risk, institutions and foreign direct investment. European Journal of Political Economy, 23(2), 397–415.  https://doi.org/10.1016/j.ejpoleco.2006.02.003.Google Scholar
  13. Chandran, V. G. R., & Tang, C. F. (2013). The impacts of transport energy consumption, foreign direct investment and income on CO2 emissions in ASEAN-5 economies. Renewable and Sustainable Energy Reviews, 24, 445–453.  https://doi.org/10.1016/j.rser.2013.03.054.Google Scholar
  14. Chang, T., Fang, W., & Wen, L.-F. (2001). Energy consumption, employment, output, and temporal causality: evidence from Taiwan based on cointegration and error-correction modelling techniques. Applied Economics, 33(8), 1045–1056.  https://doi.org/10.1080/00036840122484.Google Scholar
  15. Choi, S.-W., & Samy, Y. (2008). Reexamining the effect of democratic institutions on inflows of Foreign direct investment in developing countries. Foreign Policy Analysis, 4(1), 83–103.  https://doi.org/10.1111/j.1743-8594.2008.00059.x.Google Scholar
  16. Cuervo-Cazurra, A. (2006). Who cares about corruption? Journal of International Business Studies, 37(6), 807–822.  https://doi.org/10.1057/palgrave.jibs.8400223.Google Scholar
  17. Dam, L., & Scholtens, B. (2008). Environmental regulation and MNEs location: Does CSR matter? Ecological Economics, 67(1), 55–65.  https://doi.org/10.1016/j.ecolecon.2007.11.007.Google Scholar
  18. Damania, R., Fredriksson, P. G., & List, J. A. (2003). Trade liberalization, corruption, and environmental policy formation: theory and evidence. Journal of Environmental Economics and Management, 46(3), 490–512.  https://doi.org/10.1016/S0095-0696(03)00025-1.Google Scholar
  19. Dang, P. T. (2018). An empirical investigation of the Environmental Kuznets Curve from an international economics perspective: Does the origin of FDI matter? Journal of East Asian Studies, 16, 71–91.Google Scholar
  20. Doytch, N. (2012). FDI halo vs. pollution haven hypothesis. NYSEA Proceedings, 2012, 5.Google Scholar
  21. Doytch, N., & Uctum, M. (2016). Globalization and the environmental impact of sectoral FDI. Economic Systems, 40(4), 582–594.  https://doi.org/10.1016/j.ecosys.2016.02.005.Google Scholar
  22. Garcia-Johnson, R. (2000). Exporting environmentalism: US multinational chemical corporations in Brazil and Mexico. Cambridge: MIT Press.Google Scholar
  23. Grossman, G. M., & Krueger, A. B. (1991). Environmental Impacts of a North American Free Trade Agreement (Working Paper No. 3914). National Bureau of Economic Research.  https://doi.org/10.3386/w3914
  24. Jakobsen, J., & Soysa, I. D. (2006). Do foreign investors punish democracy? Theory and empirics, 1984–2001. Kyklos, 59(3), 383–410.  https://doi.org/10.1111/j.1467-6435.2006.00338.x.Google Scholar
  25. Jensen, N. M. (2003). Democratic governance and multinational corporations: Political regimes and inflows of foreign direct investment. International Organization, 57(3), 587–616.  https://doi.org/10.1017/S0020818303573040.Google Scholar
  26. Jorgenson, A. K. (2009). Foreign direct investment and the environment, the mitigating influence of institutional and civil society factors, and relationships between industrial pollution and human health: A panel study of less-developed countries. Organization & Environment, 22(2), 135–157.  https://doi.org/10.1177/1086026609338163.Google Scholar
  27. Kaufmann, D., Kraay, A., & Zoido-Lobatón, P. (1999). Aggregating governance indicators.‖ World Bank Policy Research Working Paper No. 2195. Washington, DC.Google Scholar
  28. Kellenberg, D. K. (2009). An empirical investigation of the pollution haven effect with strategic environment and trade policy. Journal of International Economics, 78(2), 242–255.  https://doi.org/10.1016/j.jinteco.2009.04.004.Google Scholar
  29. Kwok, C. C. Y., & Tadesse, S. (2006). The MNC as an agent of change for host-country institutions: FDI and corruption. Journal of International Business Studies, 37(6), 767–785.  https://doi.org/10.1057/palgrave.jibs.8400228.Google Scholar
  30. 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.  https://doi.org/10.1016/j.enpol.2014.01.002.Google Scholar
  31. Li, H., Xu, L. C., & Zou, H. (2000). Corruption, income distribution, and growth. Economics and Politics, 12(2), 155–182.  https://doi.org/10.1111/1468-0343.00073.Google Scholar
  32. Linh, D. H., & Lin, S.-M. (2014). CO2 emissions, energy consumption, economic growth and FDI in Vietnam. Managing Global Transitions, 12(3(Fall)), 219–232.Google Scholar
  33. López, R., & Mitra, S. (2000). Corruption, pollution, and the Kuznets environment curve. Journal of Environmental Economics and Management, 40(2), 137–150.  https://doi.org/10.1006/jeem.1999.1107.Google Scholar
  34. Mengistu, A. A., & Adhikary, B. K. (2011). Does good governance matter for FDI inflows? Evidence from Asian economies. Asia Pacific Business Review, 17(3), 281–299.  https://doi.org/10.1080/13602381003755765.Google Scholar
  35. Méon, P.-G., & Sekkat, K. (2005). Does corruption grease or sand the wheels of growth? Public Choice, 122(1–2), 69–97.  https://doi.org/10.1007/s11127-005-3988-0.Google Scholar
  36. Mudambi, R., Navarra, P., & Delios, A. (2013). Government regulation, corruption, and FDI. Asia Pacific Journal of Management, 30(2), 487–511.  https://doi.org/10.1007/s10490-012-9311-y.Google Scholar
  37. Okada, K., & Samreth, S. (2014). How does corruption influence the effect of foreign direct investment on economic growth? Global Economic Review, 43(3), 207–220.  https://doi.org/10.1080/1226508X.2014.930671.Google Scholar
  38. Osabuohien, E. S., Efobi, U. R., & Gitau, C. M. W. (2014). Beyond the environmental Kuznets curve in Africa: Evidence from panel cointegration. Journal of Environmental Policy & Planning, 16(4), 517–538.  https://doi.org/10.1080/1523908X.2013.867802.Google Scholar
  39. Pao, H.-T., & Tsai, C.-M. (2011). Multivariate Granger causality between CO2 emissions, energy consumption, FDI (foreign direct investment) and GDP (gross domestic product): Evidence from a panel of BRIC (Brazil, Russian Federation, India, and China) countries. Energy, 36(1), 685–693.  https://doi.org/10.1016/j.energy.2010.09.041.Google Scholar
  40. Plassmann, F., & Khanna, N. (2006). Household income and pollution, household income and pollution: implications for the debate about the environmental Kuznets curve hypothesis, implications for the debate about the environmental Kuznets curve hypothesis. The Journal of Environment & Development, 15(1), 22–41.  https://doi.org/10.1177/1070496505285466.Google Scholar
  41. Poelhekke, S., & Ploeg, F. van der. (2012). Green Havens and Pollution Havens (OxCarre Working Paper No. 087). Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford. https://ideas.repec.org/p/oxf/oxcrwp/087.html. Accessed 6 Jun 2017.
  42. Reiter, S. L., & Steensma, H. K. (2010). Human development and foreign direct investment in developing countries: The influence of FDI policy and corruption. World Development, 38(12), 1678–1691.  https://doi.org/10.1016/j.worlddev.2010.04.005.Google Scholar
  43. Tarverdi, Y. (2018). Aspects of governance and CO2 emissions: A Non-linear panel data analysis. Environmental & Resource Economics, 69(1), 167–194.  https://doi.org/10.1007/s10640-016-0071-x.Google Scholar
  44. Taylor, M. S. (2005). Unbundling the pollution haven hypothesis. Advances in Economic Analysis & Policy, 3, 2.  https://doi.org/10.2202/1538-0637.1408.Google Scholar
  45. Wang, D. T., Gu, F. F., Tse, D. K., & Yim (Bennett), C. K. (2013). When does FDI matter? The roles of local institutions and ethnic origins of FDI. International Business Review, 22(2), 450–465.  https://doi.org/10.1016/j.ibusrev.2012.06.003.Google Scholar
  46. Zeng, K., & Eastin, J. (2012). Do developing countries invest up? The environmental effects of foreign direct investment from less-developed countries. World Development, 40(11), 2221–2233.  https://doi.org/10.1016/j.worlddev.2012.03.008.Google Scholar

Copyright information

© Springer Nature Switzerland AG 2019

Authors and Affiliations

  1. 1.The Graduate School of East Asian Studies-Yamaguchi UniversityYamaguchi CityJapan

Personalised recommendations