Nexus of FDI, GDP, renewable energy, trade openness, and environmental pollution in Japan: New evidence from ARDL method

Abstract

The manuscript investigates the dynamic relationship between Foreign Direct Investment (FDI), Gross Domestic Product (GDP), Renewable Energy (RE), Trade Openness (TO), and environmental pollution in Japan, employing the Autoregressive Distributed Lag (ARDL) approach. The analysis uses time-series data to uncover both these variables' short- and long-term effects on Japan's environmental and economic outcomes. The manuscript finds that while FDI and TO significantly contribute to GDP growth, their effects on CO₂ emissions are nuanced, with trade liberalization potentially leading to higher emissions in the short run. In contrast, adopting RE shows a robust negative relationship with CO₂ emissions, suggesting its role in decarbonizing the economy. The long-run results emphasize the importance of transitioning to green technologies, with RE being a key driver for sustainable economic growth and environmental protection. Policy recommendations include fostering green FDI, enhancing RE investments, and promoting trade policies that align with environmental goals. The findings provide important insights for policymakers aiming to balance economic growth with climate change mitigation efforts in Japan.