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Does Foreign Direct Investment Reduce Carbon Emission? Evidence from the Panel of BRICS Countries

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  • B. Venkatraja

Abstract

The nature of the impact of Foreign Direct Investment (FDI) on environmental pollution is unclear from the available literature and the present paper examines the short-run and long-run association of FDI with carbon emissions (CO2) in BRICS countries (Brazile, Russia, India, China and South Africa). The study estimates the panel data for the BRICS region from 1992 to 2018 with yearly frequency through panel cointegration test, panel vector error correction model and panel variance decomposition. The results, though have not found any long-run relation between FDI and CO2, they indicate that carbon emissions reduce in BRICS countries with increasing FDI in the short run and support the pollution halo hypothesis. This implies that the Multi-national Companies (MNCs) shift relatively cleaner industries and transfer greener technologies to BRICS. The results also indicate reverse causation running from CO2 to FDI in the short run. Furthermore, the Gross Domestic Product (GDP) of the BRICS region appears to be directly influenced by both FDI and CO2. Findings suggested that BRICS countries should furthermore liberalise FDI policies and parallelly tighten the environmental regulations alongside creating awareness and enhancing the capabilities of the country to absorb efficient and eco-friendly technologies. Policies should provide impetus to industries to shift energy-efficient technologies and less emitting equipment.

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  • B. Venkatraja, 2022. "Does Foreign Direct Investment Reduce Carbon Emission? Evidence from the Panel of BRICS Countries," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 429-451.
    • Handle: RePEc:bas:econth:y:2022:i:4:p:429-451
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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F18 - International Economics - - Trade - - - Trade and Environment
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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