The impact of foreign direct investment and economic growth on CO2 emission: empirical study in ASIA

Abstract

This paper is to investigate the effects of foreign direct investment (FDI) inflows and economic growth on CO2 emissions in Asian countries over period from 1991 to 2013. Under the complexity between these variables, this paper applied panel analysis method and structural equation model (SEM) to explore the influence of FDI, economic growth on CO2 emissions. The result indicates that FDI inflows contribute to reduce CO2 emission (improve environmental quality) while economic growth make CO2 emissions level increase. Moreover, the result shows the two-way linkages occur between CO2 emissions and FDI inflows, CO2 emissions and economic growth. In addition, the unidirectional nexus exists from economic growth to FDI inflows.