The Effect of FDI on Environmental Degradation in Romania: Testing the Pollution Haven Hypothesis

Abstract

The study examines the relationship between CO2 emissions, trade openness, GDP growth and foreign direct investment (FDI) in Romania. The research aims to provide empirical evidence for either the pollution haven hypothesis (PHH) or the pollution halo effect (PHE). The pollution haven hypothesis suggests that countries with weaker environmental regulations and lower environmental quality are more attractive to FDI, while the pollution halo effect posits that countries with high levels of environmental protection and quality can generate positive spillover effects for FDI. The findings suggest a significant relationship between CO2 emissions, GDP growth and FDI inflows, with GDP growth having a greater effect on FDI than CO2 emissions. GDP growth has a causal effect on CO2 emissions, while CO2 emissions have a causal effect on FDI. These findings have important policy implications, as they highlight the interplay between economic growth, environmental degradation, and foreign investment. Policies aimed at reducing emissions must be comprehensive and coordinated in order to achieve significant emissions reductions and strike a balance between economic growth and environmental protection.

Carbon Dioxide Emissions and Its Socio-Economic Drivers Nexus: Empirical Evidence from MENA Countries

“…Globally, there is no significant relationship, principally from variables to our interest variable. Our findings are similar to Bunnags [57] and Chiriluș [59]. Moreover, concerning the causality between tourism sector and CO 2 , the results align to Sharif [44], Balli [46].…”

“…The environmental degradation, linked to economic growth, is found to be unidirectional, contrasting with bidirectional findings in prior research by Bunnag [57], Donkor et al [7], and Alkasasbeh, et al [38]. A unidirectional causality from CO 2 to energy use aligns with the validation of this hypothesis by Chirilus and Costea [59]. Similarly, the causality relationship between the dependent variable and FDI confirms Bunnag's [57] findings.…”

“…The validity of these outcomes is substantiated by antecedent studies. Upon examination of part 2 in the literature review, numerous investigations have concurred with similar conclusions, as demonstrated by Aydin [41], Tinoco [54], Gyamerah and Gil-Alana [60], and Chirilus and Costea [59]. Notably, Fan et al [10] contributed to this discourse by illustrating the existence of an asymmetric relationship between variables.…”

“…Findings of Javed, et al [8], uncovered a unidirectional causality running from energy consumption to CO 2 emissions. Encompassing Romania, Chirilus and Costea [59], stressed that FDI don't Granger cause CO 2 and there is a linear relationship between CO 2 and economic growth. On the other hand, Gyamerah and Gil-Alana's [60] research in Western and Central, spanning from 1970 to 2020, yielded that: Electricity consumption, economic growth, and CO 2 emissions are cointegrated.…”

A new and accurate approach to the Co2 haven hypothesis: The experience of the European Union and China

“…In these studies, different indicators have been used for the PHH. Some of them directly applied FDI, for example He Chirilus & Costea (2023) . Some researchers also used polluting goods and activities as proxies, here are some of them: Cole (2004); Akbostanci et al (2007); Kellenberg (2009); Tang (2015); Shen et al (2019);Sadik-Zada & Ferrari (2020); ; Bhat & Tantr (2023).…”