The foreign direct investments, carbon (CO₂) emissions, and economic growth nexus: an empirical analysis for Turkey and European Union countries

Abstract

Purpose - This study aims to investigate the empirical relationship between foreign direct investment, carbon emissions, and economic growth. Our study attempts to contribute to the existing literature on sustainable economic development. Methodology -The analysis was carried out using panel data analysis, covering Turkey and the 27 countries of the European Union from 2010 to 2020. Statistical data were obtained from the World Data Bank and the OECD Data Bank. Results - Hausman test analysis indicated that a fixed effects model should be selected. The model results show that foreign direct investment significantly affects economic growth, but carbon (CO2) emissions are also in a positive relationship. Foreign investment should be developed due to its impact on economic growth. However, the effects of CO2 emissions should be limited, as it causes negative social and environmental externalities. Practical implications - with the development of foreign investment, appropriate environmental policies should be implemented by all countries in global cooperation. The article proposes some development policy solutions. These include, among others, promoting foreign direct investments that lead to more effective implementation of sustainable development goals and introducing market-based financial instruments to support such investments. Originality and value - the study covers not only EU countries but also Turkey; It uses statistical modeling based on ten years of data for 28 countries. Results can be used in sustainable development policies.