Evaluating the symmetric and asymmetric effects of fossil fuel energy consumption and international capital flows on environmental sustainability: a case of South Asia

Abstract

South Asia is primarily affected by environmental degradation. As a result, it is worthwhile to explore the impact of international capital flows on the ecological sustainability of the South Asian region. There are many studies in the literature on the CO 2 -remittances nexus, CO 2 -FDI nexus, and CO 2 -economic growth; however, no study has yet taken remittances and FDI into account in the symmetric and asymmetric model for the South Asian region. To address the research gap, this study investigates the effect of international capital flows, fossil fuel energy consumption, and economic growth on South Asian carbon emissions. This study examines the effect of fossil fuel energy consumption, remittances, foreign direct investment, and economic growth on the environmental sustainability of the South Asian region from 1975 to 2020. Autoregressive distributive lag (ARDL) and non-linear ARDL (NARDL) models are used to estimate the symmetrical and asymmetrical relationships among the variables. The findings of the ARDL models reveal that fossil fuel energy consumption and economic growth increase while remittances and FDI decrease carbon dioxide (CO 2 ) in the long run. According to the NARDL empirical findings, positive remittances and negative FDI shock reduce CO 2 . Besides, the positive and negative fossil fuel energy consumption shock increases CO 2 . Moreover, the positive (negative) economic growth shock increases (decreases) CO 2 . The cumulative dynamic multipliers revealed the adjustment pattern to new long-run equilibria. The study recommends that policymakers regard remittances and FDI as policy instruments, particularly when developing long-term strategies and policies connected to environmental quality.

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