Financial Flows and Environmental Degradation: Empirical Evidence From Algeria Using Auto Regressive Distributed Lag Estimation (ARDL)

Foreign financial inflow always acts as a sort of catalyst agent for economic growth; moreover, in the recent period, the effect of these financial flows on sustainable development is a debatable topic among researchers. The central idea of conducting this analysis is to empirically explore the effect of foreign financial inflows, which are foreign direct investment (FDI), remittances (REM), and development aid (ODA), on-air pollution of Algeria using the data covers from 1970 to 2018. Instead of the conventional co-integration approach, the ARDL (auto regressive distributed lagged) estimation method is adopted for analysis. The bound test is applied for investigating the co-integration analysis. Results indicate that foreign direct investment, development aid, and energy use assert long-run positive and significant effects on air pollution, whereas remittances indicate a long-run significant but adverse impact on air pollution. In short-run foreign direct investment, ODA and GDP per capita indicate a conclusive and significant impact on air pollution. Furthermore, in short-run, energy utilization indicates a significant adverse effect on air pollution.