The effects of trade, foreign direct investment, and economic growth on environmental quality and overshoot: a dynamic common correlation effects approach

Abstract

This study empirically investigates the effects of trade, foreign direct investment, and growth on environmental quality and sustainability. In order to attain the objective of the study, we adopt the novel dynamic common correlation effect technique that accounts for cross-sectional dependence. A panel of 109 countries from 1995 to 2016 was used for the study, based on availability of data. The results indicated that economic growth, trade openness, and FDI generally degrade the environment quality, while control variables like population and human development are environmentally friendly. Income-level disparity is equally noticed with the division of the panel into low-income, lower middle-income, and upper middle-income and highincome countries. For sustainability, only human development is seen to be exerting a positive effect on ecological overshoot. The environmental Kuznets curve (EKC) hypothesis is equally validated for the global sample and for each income level but more significant in lower middle-income countries. The results indicate that efforts to improve the quality of the environment and sustain Mother Nature need to be encouraged. There is need to introduce abatement policies for firms, encourage renewable energy consumption, discourage investment in fossil fuel, implement the Common Agricultural policy, and adopt trade policy with legislation on minimum pollution within all countries.

Ecological footprint in a global perspective: the role of domestic investment, FDI, democracy and institutional quality

“…Their findings revealed that the deteriorating impact of FDI on environmental quality is dependent on the indicators used and the extent of environmental degradation at the outset. Fonchamnyo et al (2021) empirically show within a global panel of 109 countries that economic growth, FDI and trade generally degrade the quality of the environment. In a study in South Asia, Murshed et al (2022) demonstrated dirty FDIs among other economic activities are seen to reduce the ecological footprint.…”

“…As a key driver of growth and development identified within growth and development literature (Solow, 1956; Keynes, 1936; Becker, 1964; Samuelson and Solow, 1956), capital formation stands as the most viable source of growth within nations, and given that growth activities remain the mother activity for the emission of greenhouse gases into the atmosphere, the process of capital formation is primordial in tackling environmental quality enhancement goals. While foreign capital inflow into an economy spurs up the rate of domestic capital formation within the domestic economy and enhances growth and development, its accumulation has been identified as a key pollutant within the domestic economy and has been the root of major debates in the past decade (Murshed et al , 2022; Arogundade et al , 2022; Nathaniel et al , 2020; Fonchamnyo et al , 2021). If the inflow of foreign capital and its influence on the quality of the environment have been a focal point of major economic discussion in the past decade, then that of domestic capital accumulation has received relatively little attention (Yang and Khan, 2021; Fadly, 2019; Zhang et al , 2021).…”

“…,Arogundade et al (2022),Nathaniel et al (2020),Fonchamnyo et al (2021),Hakimi and Hamdi (2016),Omri et al (2014),Sapkota and Bastola (2017) but contradicts that ofZafar et al (2019),Zhu et al (2016),Doytch and Uctum (2016) andPazienza (2015). Based on the results obtained from the short-and long-run effects wherein we observe a short-run environmental improvement effect of FDI, which is in line with the studies of Qamri et al(2022), Zafar et al (2019), Zhu et al (2016), Doytch and Uctum (2016) and a long-run environmental degrading effect of FDI in line with studies like Murshed et al (2022), Arogundade et al (2022) and Nathaniel et al (…”

The role of freedom of communication in modulating the effect of political participation on electoral outcome in Africa

“…The Driscoll/Kraay strategy was employed after the ordinary least square (OLS), which minimizes only the sum squared residual. Following the Frees cross‐sectional dependence test presented in Table 1, indicating the presence of cross‐sectional dependence in the OLS estimates presented in Table 3, I preferred the Driscoll/Kraay strategy as its main strength is to account for cross‐sectional dependence (see Fonchamnyo et al, 2021; Nchofoung et al, 2021).…”

“…In the presence of dependence in the cross‐sections, nonparametric corrections for the cross‐sectional dependence are best addressed by the Driscoll/Kraay technique (Fonchamnyo et al, 2021). Following the Frees cross‐sectional dependence test, reported in Table 2, I reject beyond the critical value (1%) with the assumptions of cross‐sectional independence.…”