Foreign Direct Investment and Environmental Degradation: Further Evidence from Brazil and Singapore
Abstract
This paper assesses empirically the role of foreign direct investment (FDI) inflows on environmental quality, measured by CO2 emissions. The cases of Brazil and Singapore are taken as examples for our empirical investigation, on the grounds of their specific similarities and differences. The empirical analysis is carried out in a multivariate setting, using a variety of models (ARDL, FMOLS, and OLS) for the early 1970s to 2010. The results indicate that FDI inflows have lead to environmental degradation in Brazil but not in Singapore. Our findings point to the importance of the sectorial composition of FDI as a determinant of its impact on environmental quality. The analysis is supplemented with an environmental Kuznets curve (EKC), our results showing that the EKC hypothesis holds for the case of Singapore but its validity is marginal in Brazil.
References
References
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[32] Mielnik, O., Goldenberg, J. 2002. Foreign direct investment and decoupling between energy and gross domestic product in developing countries. Energy Policy, 30:87-89.
[33] Monserrate, M.A.Z., Bajana, I.V., Bohorqueaz, J.A., Jimerev, M.M. 2016. Relationship Between Economic Growth and Environmental Degradation: Is there an Environmental Evidence of Kuznets Curve for Brazil? International Journal of Energy Economics and Policy, 6(2): 208-216.
[34] Motta V.P. 2004. Foreign direct investment in Brazil: regulation, flows and contribution to Development. International Institute for Sustainable Development, 7(28): 5-15.
[35] Narayan, P.K., Narayan, S. 2010. Carbon dioxide emissions and economic growth: Panel data evidence from developing countries. Energy Policy, 38: 661-666.
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[38] Pao, H.T. and Tsai, C.M. 2011a. Modeling and Forecasting the CO2 Emissions, Energy Consumption and Economic Growth in Brazil. Energy, 36: 2450-2458.
[39] Pao, H.T., Fu, H.C. 2013. Renewable energy, non-renewable energy and economic growth in Brazil. Renewable and Sustainable Energy Reviews 25: 381-392.
[40] Pao, H.T., Tsai, C.M. 2011. Multivariate Granger causality between CO2 emissions, energy consumption, FDI and GDP: evidence from a panel of BRIC (Brazil, Russian Federation, India, and China) countries. Energy, 36: 685-693.
[41] Pesaran, M.H. and Smith, R. 1995. Estimating long-run relationship from dynamic heterogenous panel. Journal of Econometrics, 68: 79-113.
[42] Ren, S., Yuan, B., Ma, X., Chen, X. 2014. International trade, FDI (foreign direct investment) and embodied CO emissions: A case study of Chinas industrial sectors. China Economic Review, 28: 123-134.
[43] Saboori, B., Sulaiman, J. 2013. Environmental degradation, economic growth and energy consumption: Evidence of the environmental Kuznets curve in Malaysia. Energy Policy, 60: 892–905.
[44] Salvo, G., Simas, M.S., Pacca, S.A., Guilhoto, J.J.M., Tomas, A.R.G., Abramovay, R. 2015. Estimating the human appropriation of land in Brazil by means of an Input-Output Economic Model and Ecological Footprint analysis. Ecological Indicators, 53: 78-94.
[45] Selden, T.M. Song, D. 1994. Environmental quality and development: Is there a Kuznets curve for air pollution emissions? Journal of Environnemental Economics and Management, 27: 147–162.
[46] Shao, S., Yang, L.L., Yu, M.B., Yu, M.L. 2011. Estimation, characteristics, and determinants of energy-related industrial CO2 emissions in Shanghai (China), 1994-2009. Energy Policy, 39: 6476–6494.
[47] Smarzynska, B. K., Wei, S.J. 2001. Pollution havens and foreign direct investment: Dirty secret or popular myth? National Bureau of Economic Research, No.8465.
[48] Soytas, U., Sari, R., Ewing, B.T. 2007. Energy consumption, income, and carbon emissions in the United States. Ecological Economics, 62: 482-489.
[49] Stern, D. I. 2004. The rise and fall of the environmental Kuznets curve. World Development, 32: 1419-39.
[50] Tamazian, A., Chousa, J.P., Vadlamannati, K.C. 2009. Does Higher Economic and Financial Development Lead to Environmental Degradation: Evidence from BRIC Countries. Energy Policy, 37: 246–53.
[51] Tang, C.F., Tan, B.W. 2015. The impact of energy consumption, income and foreign direct investment on carbon dioxide emissions in Vietnam. Energy, 79: 447-454.
[52] Tollefson, J. 2010. The global farm. Nature, 466: 554-556.
[53] Unruh, G.C., Moomaw, W.R. 1998. An alternative analysis of apparent EKX-type transitions. Ecological Economics, 25: 221-229.
[54] Vincent, J.R. 1997. Testing for environmental Kuznets curves within a developing country. Environment and Development Economics, 2: 417–431.
[55] Wang, D.T., Chen, W.Y. 2014. Foreign direct investment, institutional development, and environmental externalities: Evidence from China. Journal of Environnemental Management, 135: 81-90.
[56] Xing, Y., Kolstad, C.D. 2002. Do lax environmental regulations attract foreign investment? Environmental and Resource Economics, 21: 1-22.
[57] Zarsky, L. 1999. Heavens, haloes and Spaghetti: Untangling the evidence about Foreign Direct Investment and the Environment, Emerging Market Economy Forum. Conference on Foreign Direct Investment and the Environment The Hague, Netherlands, 28-29 January 1994, CCNM/EMEF/EPOC/CIME(98)5 2 Workshop 3: Pollution Havens and Pollution Halos, Available at: http://www.oecd.org/officialdocuments/publicdisplay documentpdf/?cote=CCNM/EMEF/EPOC/CIME(98)5&docLanguage=En
[58] Zhang, Y.J. 2011. The impact of financial growth on carbon emissions: an empirical analysis in China. Energy Policy, 39: 2197-2203.
[1] Acharyya, J. 2009. FDI, growth and the environment: Evidence from India on CO2 emmission during the last two decades. Journal of Economic Development, 34(1): 43-58.
[2] Albornoz, F., Cole, M.A., Elliott, R.J., Ercolani, M.G. 2009. In search of environmental spillovers. The World Economics, 32:136-63. DOI: http://dx.doi.org/10.2139/ssrn.1121916
[3] Aliyu, A.M. 2005. Foreign Direct Investment and the Environment: Pollution Haven Hypothesis Revisited. In Eighth Annual Conference on Global Economic Analysis, Lüeck, Germany. Available at: https://www.gtap. agecon.purdue.edu/resources/download/2131.pdf?q=pollution-haven-hypothesis
[4] Ansuategi, A. 2003. Economic growth and trans-boundary pollution in Europe: An empirical analysis. Environmental and. Resource Economics, 26: 305–328.
[5] Blanco, L., Gonzalez, F., Ruiz, I. 2012. The impact of FDI on CO2 emissions in Latin America. Oxford Development Studies, 41: 104-21.
[6] Castro, P.G.C, Fernandes, E.A., Campos, A.C. 2013. The determinants of foreign direct investment in Brazil and Mexico: An empirical analysis. Procedia Economics and Finance, 5: 231-240.
[7] Chandran, V.G.R., Tang, C.F. 2013. The impact of transport energy consumption, foreign direct investment and income on CO2 emissions in ASEAN-5 economies. Renewable and Sustainable Energy Review, 24: 445-453.
[8] Chung, S. 2014. Environmental regulation and foreign direct investment: Evidence from South Korea. Journal of Development Economics, 108: 222–236.
[9] Cole, M.A., Elliott, R.J. 2005. FDI and the capital intensity of ‘dirty’ sectors: a missing piece of the pollution haven puzzle. Review of Development Economics, 9: 530-48.
[10] Dinda, S. 2004. Environmental Kuznets curve hypothesis: A Survey. Ecological Economics, 49: 431-55.
[11] Elliott, R., Sun, P., Chen, S. 2013. Energy intensity and foreign direct investment: A Chinese city-level study. Energy Economics, 40: 484-494.
[12] Eskeland, G.S., Harrison, A.E. 2003. Moving to greener pasture? Multinationals and the pollution heaven hypothesis. Journal of Development Economics, 70: 1–23.
[13] Friedl, B., Getzner, M. 2003. Determinants of CO2 emissions in a small open economy. Ecological Economics, 45: 133–148.
[14] Gorg, H., Strobl, E.A. 2005. Spillovers from foreign firms through worker mobility: an empirical investigation. Scandinavian Journal of Economics, 107: 693-709.
[15] Granger, C.W.J., Newbold, P. 1974. Spurious regressions in econometrics. Journal of Econometrics, 2: 111-120.
[16] Grossman, G.M., Krueger, A.B. 1995. Economic growth and the environment. The Quarterly Journal of Economics, 110: 353–377.
[17] Hassaballa, H. 2013. Environment and foreign direct investment: policy implications for developing countries. Journal of Emerging Issues in Economics, 1: 75-106.
[18] Hassaballa, H. 2014. The Effect of Lax Environmental Laws on Foreign Direct Investment Inflows in Developing Countries. Journal of Emerging Trends in Economics and Management Sciences, 5: 305-315.
[19] He, J. 2006. Pollution haven hypothesis and environmental impacts of foreign direct investment: The case of industrial emission of sulfur dioxide (SO2) in Chinese provinces. Ecological Economics, 6(1): 228–245.
[20] Hoffmann, R., Lee, CG., Ramasamy, B., Yeung, M. 2005. FDI and pollution: a Granger causality test using panel data. Journal of International Development, 17: 311-317.
[21] Holtz-Eakin, D., Selden, T.M. 1995. Stoking the fires? CO2 emissions and economic growth. Journal of Public Economics, 57: 85–101.
[22] Jadhav, P. 2012. Determinants of foreign direct investment in BRICS economies: Analysis of economic, institutional and political factor. Procedia-Social and Behavioral Sciences, 37: 5-14.
[23] Kivyiro, P., Arminer, H. 2014. Carbon dioxide emissions, energy consumption, economic growth, and foreign direct investment: Causality analysis for Sub-Saharan Africa. Energy, 75: 595-606.
[24] Lee, C.G. 2009. Foreign direct investment, pollution and economic growth: Evidence from Malaysia. Applied Economics, 41: 1709-16.
[25] Lee, J.W. 2013. The contribution of foreign direct investment to clean energy use, carbon emissions and economic growth. Energy Policy, 55: 483-489.
[26] Lee, J.W., Brahmasrene, T. 2013. Investigating the influence of tourism on economic growth and carbon emissions: Evidence from panel analysis of the European Union. Tourism Management, 38: 69-76.
[27] Levinson, A. 1996. Environmental regulations and manufacturer’s location choices: evidence from the census of manufacturing. Journal of Public Economics, 61: 5-29.
[28] List, J. A., Co, C. Y. 2000. The effect of environmental regulation on foreign direct investment. Journal of Environmental Economics and Management, 40: 1-20.
[29] Managi, S., Jena, P.R. 2008. Environmental productivity and Kuznets curve in India. Ecological Economics, 65:432-440.
[30] Marland, G., Boden, T.A., Andres, R.J., Brenkert, A.L., Johnston, C.A. 2007. Global, regional, and national fossil fuel CO2 emissions. Trends: A Compendium of Data on Global Change, 37831-6335.
[31] Merican, Y., Yusop, Z., Mohd Noor, Z., Law, S.H. 2007. Foreign direct investment and the pollution in Five ASEAN Nations. International Journal of Economics & Management 1: 245-61.
[32] Mielnik, O., Goldenberg, J. 2002. Foreign direct investment and decoupling between energy and gross domestic product in developing countries. Energy Policy, 30:87-89.
[33] Monserrate, M.A.Z., Bajana, I.V., Bohorqueaz, J.A., Jimerev, M.M. 2016. Relationship Between Economic Growth and Environmental Degradation: Is there an Environmental Evidence of Kuznets Curve for Brazil? International Journal of Energy Economics and Policy, 6(2): 208-216.
[34] Motta V.P. 2004. Foreign direct investment in Brazil: regulation, flows and contribution to Development. International Institute for Sustainable Development, 7(28): 5-15.
[35] Narayan, P.K., Narayan, S. 2010. Carbon dioxide emissions and economic growth: Panel data evidence from developing countries. Energy Policy, 38: 661-666.
[36] Omri, A., Nguyen, D.K., Rault, C. 2014. Causal interactions between CO2 emissions, FDI, and economic growth: Evidence from dynamic simultaneous-equation models. Economic Modelling, 42: 382-389.
[37] Panayotou, T. 1993. Empirical tests and policy analysis of environmental degradation at different stages of economic development. International Labour Organization Office Geneva No.292778. ISBN 92-2-108796-4, Available at: http://staging.ilo.org/public/libdoc/ilo/1993/93B09_31_engl.pdf
[38] Pao, H.T. and Tsai, C.M. 2011a. Modeling and Forecasting the CO2 Emissions, Energy Consumption and Economic Growth in Brazil. Energy, 36: 2450-2458.
[39] Pao, H.T., Fu, H.C. 2013. Renewable energy, non-renewable energy and economic growth in Brazil. Renewable and Sustainable Energy Reviews 25: 381-392.
[40] Pao, H.T., Tsai, C.M. 2011. Multivariate Granger causality between CO2 emissions, energy consumption, FDI and GDP: evidence from a panel of BRIC (Brazil, Russian Federation, India, and China) countries. Energy, 36: 685-693.
[41] Pesaran, M.H. and Smith, R. 1995. Estimating long-run relationship from dynamic heterogenous panel. Journal of Econometrics, 68: 79-113.
[42] Ren, S., Yuan, B., Ma, X., Chen, X. 2014. International trade, FDI (foreign direct investment) and embodied CO emissions: A case study of Chinas industrial sectors. China Economic Review, 28: 123-134.
[43] Saboori, B., Sulaiman, J. 2013. Environmental degradation, economic growth and energy consumption: Evidence of the environmental Kuznets curve in Malaysia. Energy Policy, 60: 892–905.
[44] Salvo, G., Simas, M.S., Pacca, S.A., Guilhoto, J.J.M., Tomas, A.R.G., Abramovay, R. 2015. Estimating the human appropriation of land in Brazil by means of an Input-Output Economic Model and Ecological Footprint analysis. Ecological Indicators, 53: 78-94.
[45] Selden, T.M. Song, D. 1994. Environmental quality and development: Is there a Kuznets curve for air pollution emissions? Journal of Environnemental Economics and Management, 27: 147–162.
[46] Shao, S., Yang, L.L., Yu, M.B., Yu, M.L. 2011. Estimation, characteristics, and determinants of energy-related industrial CO2 emissions in Shanghai (China), 1994-2009. Energy Policy, 39: 6476–6494.
[47] Smarzynska, B. K., Wei, S.J. 2001. Pollution havens and foreign direct investment: Dirty secret or popular myth? National Bureau of Economic Research, No.8465.
[48] Soytas, U., Sari, R., Ewing, B.T. 2007. Energy consumption, income, and carbon emissions in the United States. Ecological Economics, 62: 482-489.
[49] Stern, D. I. 2004. The rise and fall of the environmental Kuznets curve. World Development, 32: 1419-39.
[50] Tamazian, A., Chousa, J.P., Vadlamannati, K.C. 2009. Does Higher Economic and Financial Development Lead to Environmental Degradation: Evidence from BRIC Countries. Energy Policy, 37: 246–53.
[51] Tang, C.F., Tan, B.W. 2015. The impact of energy consumption, income and foreign direct investment on carbon dioxide emissions in Vietnam. Energy, 79: 447-454.
[52] Tollefson, J. 2010. The global farm. Nature, 466: 554-556.
[53] Unruh, G.C., Moomaw, W.R. 1998. An alternative analysis of apparent EKX-type transitions. Ecological Economics, 25: 221-229.
[54] Vincent, J.R. 1997. Testing for environmental Kuznets curves within a developing country. Environment and Development Economics, 2: 417–431.
[55] Wang, D.T., Chen, W.Y. 2014. Foreign direct investment, institutional development, and environmental externalities: Evidence from China. Journal of Environnemental Management, 135: 81-90.
[56] Xing, Y., Kolstad, C.D. 2002. Do lax environmental regulations attract foreign investment? Environmental and Resource Economics, 21: 1-22.
[57] Zarsky, L. 1999. Heavens, haloes and Spaghetti: Untangling the evidence about Foreign Direct Investment and the Environment, Emerging Market Economy Forum. Conference on Foreign Direct Investment and the Environment The Hague, Netherlands, 28-29 January 1994, CCNM/EMEF/EPOC/CIME(98)5 2 Workshop 3: Pollution Havens and Pollution Halos, Available at: http://www.oecd.org/officialdocuments/publicdisplay documentpdf/?cote=CCNM/EMEF/EPOC/CIME(98)5&docLanguage=En
[58] Zhang, Y.J. 2011. The impact of financial growth on carbon emissions: an empirical analysis in China. Energy Policy, 39: 2197-2203.
Published
2017-05-27
How to Cite
KOSTAKIS, Ioannis; LOLOS, Sarantis; SARDIANOU, Eleni.
Foreign Direct Investment and Environmental Degradation: Further Evidence from Brazil and Singapore.
Journal of Environmental Management and Tourism, [S.l.], v. 8, n. 1, p. 45-59, may 2017.
ISSN 2068-7729.
Available at: <https://journals.aserspublishing.eu/jemt/article/view/1054>. Date accessed: 25 apr. 2024.
doi: https://doi.org/10.14505//jemt.v8.1(17).04.
Section
Article
Copyright© 2023 The Author(s). Published by ASERS Publishing 2023. This is an open access article distributed under the terms of CC-BY 4.0 license.