Digital FDI, ICT development and environmental performance: a comparison between G7 and BRICS economies

Abstract

Digitalization is known to improve ecological sustainability. However, the rise in ICT infrastructure, such as data centers, cloud computing, and network servers, continues to accelerate greenhouse gas emissions. Foreign direct investment (FDI) can, therefore, help reduce the environmental risks of digitalization by fostering green technology transfer, sustainable manufacturing, and clean energy. This study conducts a comparative examination to determine how FDI inflows in digitalization, particularly ICT trade and internet penetration, can ensure environmental pollution (CO₂ and N₂O emissions) mitigation in the BRICS and G7 economies. In addition, for the 2000-2023 dataset, the study uses Panel-corrected Standard Errors (PCSE) and Driscoll-Kraay Standard Errors (DKSE) in its analysis. The findings indicate that, when considered in isolation, ICT trade leads to an increase in emissions at the country level for G7 countries and has no effect for BRICS nations. However, FDI in ICT trade reduces CO₂ emissions across BRICS economies. Internet access also largely offsets emissions in both blocs, and when integrated with FDI, it decreases CO₂ emissions in the G7 and mitigates N₂O emissions across BRICS nations. This research helps policymakers and investors understand how foreign investment can support green technologies and internet infrastructure, thereby increasing long-term benefits and ensuring a sustainable environment.