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Impact Of Foreign Direct Investment On Environment Degradation: Evidence From SIDS Countries

Author

Listed:
  • B. Jugurnath
  • A. Emrith

    (University of Mauritius, Mauritius)

Abstract

This paper examines the impact of foreign direct investments on environment degradation in the SIDS group by using a sample of six small island developing states for the time period 2004-2014. It provides a better understanding on the relationship between FDI inflows with its control variables and environment pollution. The results show that there is no positive and significant relationship between FDI and CO2 emissions, that is, FDI has no negative impact on the environment. This outcome was contrary to our expectations but can be attributed and explained by the fact that FDI are perceived as the main sources of cleaner advanced technology and sustainable modes of production to the SIDS. The results indicate that a rise in FDI does not lead to a significant increase in the levels of CO2 emissions in SIDS countries. In other words, foreign investments do not appear to facilitate the growth of pollution havens in amongst the SIDS. Furthermore, the combined effects of the fixed effect model and SUR suggests that FDI and its control variables do not contribute to the higher level of CO2 emissions in SIDS economies. A possible explanation for this optimistic finding is that FDI may help emerging economies like the small islands developing states to modernize and upgrade the quality of their capital stock and such technology effects may translate into lower air pollution. The results are consistent with Liang (2006), Pao and Tsai (2011), Fereidouni (2013) and Hassaballa (2013) who argued that FDI does not increase pollution levels the results provide useful information to policymakers of these small island developing states, as it suggests that these countries can concentrate their efforts in attracting higher levels of FDI inflows into their economies. Though there have been several papers which analyzed the FDI-Environment relationship, this is the first one which studied the impact of FDI inflows on environment degradation in the SIDS.

Suggested Citation

  • B. Jugurnath & A. Emrith, 2018. "Impact Of Foreign Direct Investment On Environment Degradation: Evidence From SIDS Countries," Journal of Developing Areas, Tennessee State University, College of Business, vol. 52(2), pages 13-26, April-Jun.
    • Handle: RePEc:jda:journl:vol.52:year:2018:issue2:pp:13-26
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    Keywords

    Foreign Direct Investment; Environment Degradation; CO2 emissions level; SIDS countries;
    All these keywords.

    JEL classification:

    • A2 - General Economics and Teaching - - Economic Education and Teaching of Economics
    • C4 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems

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