Post-Soviet states and CO2 emissions: the role of foreign direct investment

ABSTRACT Natural resource abundance, growth-oriented strategies and low environmental concern of post-Soviet states may exacerbate the consequences of climate change significantly. This study considers the relationship between CO2 emissions, economic development, foreign investment inflows, trade and energy use in 20 post-Soviet states between 1995 and 2017. A panel cointegration test reveals the long-term cointegrating relationship between the variables. Long-term elasticities are reported using Dynamic Ordinary Least Squares and Fully Modified Ordinary Least Squares regressions, which yield quite similar results: GDP per capita, foreign direct investment (FDI) inflows, trade and energy use positively related to CO2 emissions per capita in the long term. A panel causality test, however, identifies unidirectional causality running from CO2 emissions to energy use at p<0.01. In other words, greater economic activity in terms of foreign capital inflows, larger trade shares, extensive energy use and economic development, harm the environment through increasing CO2 emissions and strengthen the need for greater environmental and climate change concerns. The study aims to contribute to this Special Issue through accounting for the role of foreign direct investment and foreign trade in the sustainable development of post-Soviet states.