Toward achieving sustainable development: Searching for economic development and globalization thresholds in the foreign direct investment‐environmental degradation nexus

Abstract

The need to reduce environmental degradation has led to the identification of several factors influencing environmental degradation, with the inflows of foreign direct investments (FDI) touted as a key factor. However, findings produced from the existing studies on FDI-environmental degradation nexus are far from being conclusive, leaving policymakers under quandary regarding the precise effect of FDI on environmental degradation. We contribute to the FDI-environmental degradation nexus debate by examining how economic development and globalization thresholds influences the role of FDI in environmental degradation in industrialized countries over the 1991-2016 period. We invoke a recently developed fixed effect panel threshold model estimation procedure that does not impose a prior functional form of the threshold. We find that FDI inflows mitigate environmental degradation when countries' levels of economic development and globalization are below the estimated thresholds. However, above the thresholds, higher FDI inflows significantly degrade the environment. Thus, unbridled economic development and globalization do not permit FDI to reduce environmental degradation.

Extra‐regional trade and consumption‐based carbon dioxide emissions in the European countries: Is there a carbon leakage?

“…(2020) and Aluko et al (2021). However, this insignificant nexus may be explained by the offset mechanism as discussed by Koseoglu et al (2022): The urbanized locations with high population density have higher production and income, which may scale up CCEpc by stimulating the consumption of energy and emission-intensive products.…”

“…Again, the AMG estimations of Doğan et al (2021) showed a positive association between population and carbon emissions for a panel of 28 OECD countries covering the 1990–2014 period. However, using the fixed effect panel threshold estimations in the case of 27 industrialized countries (including most European countries) over the 1991–2016 period, Aluko et al (2021) found that both population and urbanization had a negative association with the ecological footprint. Besides, the results of Koseoglu et al (2022) showed that urbanization did not have a statistically significant effect on the ecological footprint for the panel of top 20 green innovator countries (including 13 European countries) over the 1993–2016 period.…”

“…The existing literature has been largely dominated by the STochastic Impacts by Regression on Population, Affluence, and Technology (STIRPAT) modeling developed by Ehrlich and Holdren (1971) and reformulated in a stochastic version by Dietz and Rosa (1997). For the T A B L E 1 Greenhouse gas emissions (GHGE) inventories of the European countries population effect, population growth and urbanization are widely considered (Do gan et al 2021;Aluko et al 2021;Koseoglu et al 2022), while the impacts of technology are generally modeled by the adoption and production of high-tech products, development of environmental technologies, eco-innovations, and level of research and development investment (Fernández et al 2018;Park et al 2018;Danish et al 2019;Bashir et al 2020 andDanish et al 2020;Ma et al 2022). Most of the relevant studies reflect the environmental impacts of affluence by examining the nexus between economic growth and carbon emissions (Cheng et al 2018;Bekun et al 2019;Gardiner and Hajek 2020;Ren et al 2021),…”

Do human capital and governance thresholds matter for the environmental impact of FDI? The evidence from MENA countries

“…Muhammad and Long (2021) show that pollution halo is the case for high income economies. The panel xed effects threshold estimation results by Aluko et al (2021) show that the level of income and globalization provide thresholds for the effect of FDI on pollution. They nd that FDI lowers pollution in economies with lower levels of income and globalization while it leads to environmental degradation in higher levels of income and more globalized countries.…”

Exploring the role of information communication technology, trade, and foreign direct investment to promote sustainable economic growth: Evidence from Belt and Road Initiative economies

“…The FDI helps the nations fortify the cash flows in the economy while decreasing import/export imbalances (Zaman et al, 2021). In particular, FDI elevates economic development and the country's cash flows below the thresholds (Aluko et al, 2022). Therefore, the economist should pay attention to the impact of ICT on FDI to achieve sustainable economic growth.…”