The technical decomposition of carbon emissions and the concerns about FDI and trade openness effects in the United States

Abstract

This paper decomposes the environmental Kuznets curve into the scale, technique and composition effects while incorporating the roles of energy consumption, trade openness and foreign direct investments (FDI) effects in a carbon emissions function for the United States (U.S.). We have incorporated information about unknown structural breaks into this function while investigating the cointegration between the related variables. The empirical results confirm the existence of cointegration between the variables in the presence of structural breaks. Moreover, the scale effect increases carbon dioxide emissions, but the technique effect reduces it as expected. Energy consumption also adds to carbon emissions, while the composition effect improves environmental quality by lowering carbon dioxide emissions. Further, trade openness decreases carbon dioxide emissions. However, increases in FDI hamper environmental quality by increasing carbon emissions. To reduce the level of carbon emissions, the technical processes of production should be improved by investing in technological innovations and capital stock and upgrading environmental regulations to channel in environment-friendly FDIs. There should also be a transformation of the energy consumption structure towards cleaner energy sources.

Determinants of green growth in developed and developing countries

“…Mihci et al ( 2005 ) argue that international investment and trade help fill the technology gap among countries. Shahbaz et al ( 2019 ) argue that allowing free trading in and out of the country can improve environmental quality, but an increase in foreign investment is detrimental to a greener environment. The author suggests investment in technological innovation, capital stock, and the implementation of stringent environmental policies that will re-direct FDI towards green investment.…”

CO2 Emissions, Financial Development, Trade, and Income in North America: A Spatial Panel Data Approach

“…He found that monetary and trade policies and financial regulations contributed to the CO 2 emissions. Shahbaz et al (2019) mentioned that energy consumption, trade openness, and FDI have an influence on CO 2 emissions in the United States. Energy consumption and FDI increase CO 2 emissions, whereas trade openness declines CO 2 emissions.…”

“…Anastacio (2017) investigated the EKC in three NAFTA countries, and other studies investigated the EKC hypothesis in the single-country case of the NAFTA region (e.g., Burnett, Bergstrom, & Wetzstein, 2013;Dogan & Turkekul, 2016;Lantz & Feng, 2006;Lipford & Yandle, 2011;Olale et al, 2018). Other than EKC, some studies also investigated the role of FDI, trade, and FMD in the pollution emissions in the single-country analysis of the NAFTA region (Dogan & Turkekul, 2016;Gale, 1995;Shahbaz et al, 2019;Waldkirch & Gopinath, 2008). But, the role of the mentioned variables in the pollution emissions of the whole North American region is missing in the literature, and spatial dependency of pollution emissions of this region also needs attention.…”

How Does Economic Policy Uncertainty Affect CO2 Emissions? A Regional Analysis in China

“…Dietz and Rosa (1994) reformulate the IPAT framework by considering nonproportional effects of driving forces, raising the stochastic version of this model, namely, STIRPAT (stochastic impacts by regression on population, affluence and technology). The stochastic model has been actively applied to examine all other factors affecting human impact on the environment for both developed and developing countries, such as industrial structure (Dong et al 2020, Wang et al 2016, Yu et al 2018, foreign direct investment (FDI) (Demena and Afesorgbor 2020, Mahadevan and Sun 2020, Shahbaz et al 2019, Tang and Tan 2015 and urbanization (Elliott and Clement 2014, Huo et al 2020, Khan et al 2019, Makido et al 2012, Yao et al 2018.…”