The Benefits and Costs of Foreign Direct Investment for Sustainability in Emerging Market Economies

Abstract

The chapter contributes to the growing body of empirical researches by exploring the nexus among FDI, trade, carbon dioxide emission level, and the renewable energy use. Panel VAR econometric methodology upon the data for 18 emerging economies over the period of 1990-2014 is applied to uncover the interactive and simultenous relations among variables. Granger causality test results indicate that FDI, carbon emission, and renewable energy use Granger cause trade. Carbon emission and renewable energy use Granger cause FDI, FDI Granger causes carbon emission, and FDI granger causes renewable energy use. Impulse response analysis results indicate that FDI decreases trade, carbon emission, and renewable energy use. Moreover, carbonemission decreases trade, and increases FDI whereas it is decreased by renewable energy use. Results indicate that the Pollution Haven and the Pollution Halo hypothesis are valid for the FDI, however, the Pollution Haven hypothesis is not valid for trade. Additionally, results indicate that FDI decreases trade implying the presence of substitution relation between FDI and trade.