Investigating the Dynamic Impact of FDI Inflows and Economic Growth on Environmental Degradation: Evidence From FMOLS and DOLS for Selected Asian Countries

Abstract

The study examines the dynamic relationship between foreign direct investment (FDI) inflows, economic growth, and environmental degradation and investigates the long-run validity of the environmental Kuznets curve (EKC) and the pollution haven hypothesis (PHH) for selected Asian countries over the period 1990–2019. Additionally, this study aims to discover the longrun impact of energy consumption, globalization, and population density on environmental degradation by employing a panel cointegration approach, fully modified ordinary least squares (FMOLS), and dynamic ordinary least squares (DOLS). The findings provide clear evidence of the existence of EKC and PHH in Asian countries for the period 1990–2019 in the long run. The findings reveal that economic growth has a highly significant and positive role in depleting environmental quality, but this effect gets reversed in the long run as, after a certain turning point, economic growth increases, and the quality of the environment gets better. Moreover, FDI inflows and energy consumption have a positive long-run impact on CO2 emissions, thus contributing to environmental degradation. The study recommends that governments and policymakers should strategically devise and implement CO2 reduction policies, such as carbon pricing, to encourage economic growth and to improve the quality of the environment, with the ultimate goal being to achieve sustainable development. Moreover, the use of cleaner energy should be promoted, and innovations and technological developments should be encouraged for hydropower, wind power, solar energy and other facilities around the world.