Do Foreign Trade and Investment Lead to Higher CO₂ Emissions? Evidence from Cross-Country Empirical Estimates

Abstract

The waves of globalisation in the past decades have increased the cross-country trade and investment flows, which also raise serious concerns over environmental sustainability and climate change owing to the following three effects. First, through scale effect the growing output and exports of the polluting sectors may adversely influence environmental balance. Secondly, growing trade volume can lead to change in industry structure and output composition resulting from composition effect, which may or may not have adverse environmental repercussions. Finally, the technique effect determines the pace of improvement in emission abatement standards and regulatory policies in an economy with rise in trade orientation. The present analysis attempts to analyse the effects of trade and investment orientation with respect to a particular climate change concern, namely per capita CO2 emissions, through panel data model for a set of 181 countries over 1980–2009. The empirical findings confirm that both in case of lower and higher income countries, higher merchandise and service trade growth leads to higher per capita CO2 emission growth in their territories. In addition, both FDI inward and outward stock is found to be positively related to CO2 emission, reflecting a complementary relationship between the two. The empirical results indicate that the composition, scale and technology effects significantly influence the openness—per capita CO2 emission interrelationship across countries.

How do FDI inflows curvilinearly affect carbon emissions? Threshold effects of energy service availability and cleanliness

“…From the perspective of curvilinearity and distribution lag, the carbon reduction effects of FDI inflows do not appear immediately. Specifically, FDI inflows are apparently not initially helpful for environmental improvement, but after 6 years, they do alleviate environmental pollution (Chakraborty & Mukherjee, 2013). From the perspective of heterogeneity, it has been found that the relationship between FDI and carbon emissions varies with different situations.…”

Relationship between Fiscal Subsidies and CO2 Emissions: Evidence from Cross-Country Empirical Estimates

“…Second, the existing theoretical and empirical literature explains the climate change related repercussions of international trade flows with help of three effects [24][25][26]. First, through scale effect the growing output and exports of the polluting sectors may adversely influence environment, as that may cause additional energy use and exploitation of natural resources [27].…”