Tackling the ecological footprints of foreign direct investment and energy dependency through governance: empirical evidence from GCC region

Due to more focus on environmental sustainability, the topic of environmental pollution has become much prominent among the academic community and policy officials. In this regard, the role of foreign direct investment and dependency on diverse energy sources in determining CO2 emissions is undeniable. Considering this, the current study attempts to empirically explore the association among foreign direct investment, energy dependency, and CO2 emissions in the GCC region. This study further examines the moderating effect of the governance system in the energy dependency-CO2 emissions liaison. We use a large range of data spanning from 1996 to 2019 and employ FMOLS (fully modified ordinary least square) techniques to test the suggested relationship. The empirical analysis discovered an inverse connection between foreign direct investment and CO2 emissions while a direct association between consumption of non-renewable energy sources and CO2 emissions. Additionally, the moderating role of a better governance system in alienating the adverse impacts of non-renewable energy consumption was observed. The inflow of FDI can reduce CO2 emissions by facilitating the development of modern technology. Similarly, a better governance system can mitigate the adverse impacts of non-renewable energy by enhancing energy efficiency and energy management. The empirical analysis supports the pollution halo hypothesis in the GCC region and recommends various policies. The policy officials should do more focus on exercising a better governance system. They should also enhance the volume of FDI inflow through multiple policy facilitations.