The Impact of Foreign Direct Investment on Environmental Quality in ASEAN Countries

Abstract

Purpose: The purpose of this paper is to examine the impact of foreign direct investment (FDI) on environmental quality in ASEAN countries, the most FDI-attractive region. Design/methodology/approach: This study using the panel time series Pedroni cointegration approach with Fully Modified Ordinary Least Square and Dynamic Ordinary Least Square. This research analyses data from nine ASEAN countries from 2005 to 2018. Findings: The paper finds that there is cointegration between the variables studied in the study. In addition, long-term economic growth and FDI have a significant impact on ASEAN’s environmental quality. Panel granger causality results also reveal a bidirectional causality between FDI and trade openness, growth in the GDP, fuel consumption, and the population in ASEAN. Foreign direct investment is important not only for promoting economic growth and development in ASEAN countries, but it also helps to improve environmental quality in the region. Research limitations/implications: Due to data availability constraints, the study cannot include Myanmar data.