Dynamic Causality Among FDI, Economic Growth and CO2 Emissions in India With Open Markets and Technology Gap

Abstract

This study examines the causality relationships between FDI, economic growth (in terms of GDP) and the natural environment, in terms of CO2 emissions and energy consumption, along with two more variables of interest i.e., trade openness and technology gap in the context of India. The data used in the study is obtained from World Development Indicators (WDI) of the World Bank Group for the period 1980 to 2014. The study employed the dynamic multivariate Toda-Yamamoto (TY) approach that uses the modified Wald (MWALD) test. The results show that FDI is neither causing economic growth nor is it bridging the technology gap directly in India. The results also indicate the existence of a Pollution Haven Hypothesis in India as the FDI is causing environmental degradation, i.e. CO2 emissions and energy consumption. Also, FDI is, though not causing GDP directly, but is doing so indirectly through CO2 emissions validating the existence of Pollution Haven Hypothesis. FDI is causing trade openness in India, but that openness is again causing more FDI which is doing no good for India.

Impacts of COVID-19 on Trade and Economic Aspects of Food Security: Evidence from 45 Developing Countries

“…Among the drawbacks of the TY causality test is the inability to predict the relative strength of causalities between the variables beyond the period under study. Sankaran et al [ 119 ], Rana and Sharma [ 120 , 121 ], and Wang and Ngene [ 122 ] suggested to overcome this problem by using the Wald or modified Wald (MWald) tests, but Hayashi et al [ 123 ] and Lemonte [ 124 ] demonstrated that, in small samples when used empirically to search for unimportant parameters, the Wald test procedure could be misleading. In furtherance of Zhang et al [ 125 ], Mao et al [ 126 ], Adebayo [ 97 ], and Chan et al [ 127 ], we used variance decomposition instead of the Wald test to explore the strengths of inter-variables causal interactions and to reveal potential causality impacts.…”

Determinants of Foreign Direct Investments in Brics Countries: The Role of Carbon Emissions

“…Management Volume 16 Number 7, October 2021: 318-331 The role of energy consumption and its attending environmental consequences are missing from the above literature. Although numerous FDI-energy or FDI and environment literature are recently available (Essandoh et al, 2019;Yilanci, 2019;Akram, 2020;Do & Dinh, 2020;Jiang et al, 2020;Mahmood et al, 2020;Mukhtarov et al, 2020;Nguyen et al, 2020;Rana & Sharma, 2020;Wang et al, 2020;Yüksel., et al 2020), they are mainly on the role of FDI on energyrelated variables, but not the other way round, except for a recent study by Yüksel, et al (2020), who uses a bivariate model to prove the negative effect of CO2 on FDI. Essandoh et al (2019) studied both developed and developing economies in terms of the environmental effect of trade and FDI and suggested that both are critical forces in determining CO2 emissions.…”

“…Using Modified Wald, Rana and Sharma (2020) checked the causality of FDI, GDP and environment alongside the openness and technological gap over the period of 1980-2014. They were able to traced the causality from FDI to trade and CO2, which signifies that FDI is the source of environmental degradation via energy consumption and its resulting CO2 remittance in India.…”

“…They were able to traced the causality from FDI to trade and CO2, which signifies that FDI is the source of environmental degradation via energy consumption and its resulting CO2 remittance in India. Another time series study was conducted by Do and Dinh (2020) using similar combination of variables used by Rana and Sharma (2020) in Vietnam. Their result from vector error correction model reveals that FDI have a positive effect on CO2, while all other variables exhibit a contrary result.…”

“…BRICS is the host of more than 15% of the total global FDI flow as at 2015 and it is the home of 9% of the total global FDI stock in the same year (UNCTAD, 2016). FDI is one of the strong contributors of greenhouse remittance and a few recent studies revealed its massive link to the amount of CO2 remitted in a country or set of countries (Essandoh et al, 2019;Do & Dinh, 2020;Jiang et al, 2020;Mahmood et al, 2020;Mukhtarov et al, 2020;Nguyen et al, 2020;Rana & Sharma, 2020). All the aforementioned studies have explored similar perspectives, in which the effect of FDI on the CO2 emissions has been examined and not the other way round, and they mostly reported the positive effect, with some few exceptions in the case of Do and Dinh (2020), who found the results showed a negative effect after some period of time, and Mahmood et al (2020), who did not found any significant relationship between the two.…”