Integrated Analysis of CO2 Emission Intensity, Bilateral FDI, and Institutional Quality Nexus: Case Study of G20 Countries

Abstract

A clean natural environment is a primary concern of contemporary lives, business investments, and governments. However, there is a lack of knowledge of how countries can achieve high investment across borders and better institutional quality while protecting the environment. Thus the current paper explores the effect of bilateral FDI, institutional quality, and CO2 emission intensity on each other for 19 selected G20 countries over the 2009-2017 periods. This paper estimates the three equations that jointly address the endogeneity problem by employing both static and dynamic simultaneous econometrics techniques with a panel dataset. The empirical results confirm that bilateral FDI reduces CO2 emission intensity and strengthens the institutional quality in G20. The results also support a positive and significant effect of institutional quality on bilateral inward FDI and CO2 emission intensity. This paper confirms a positive and considerable feedback effect of CO2 emission intensity on institutional quality. Further, this study establishes a triplex relationship between these three factors and consolidates vital policy insights to achieve sustainable growth concerning the nexus among environment quality-FDI-institution quality for G20 economies.