The effect of FDI on environmental emissions : Evidence from a meta-analysis

Binyam Afewerk Demena, SK Afesorgbor

Research output: Working paperAcademic

3 Downloads (Pure)

Abstract

One important and frequently-raised issue about foreign direct investment (FDI) is the potentially negative consequences for the environment. The potential environmental cost due to increased emissions may undermine the economic gains associated with increases in FDI inflow. Although the literature is dominated with this adverse view of FDI on the environment, there is also a possibility that FDI can contribute to a cleaner environment, especially, if FDI comes with green technologies and this creates spillovers for domestic industries. Theoretically, the effect of FDI on the environment can be negative or positive. To deal with the theoretical ambiguity about the FDI environment nexus, many empirical studies have been conducted but their results only reinforce the controversy as they produce contrasting results. We conduct a meta-analysis of the effect of FDI on environmental emissions using 65 primary studies that produce 1006 elasticities. Our results show that the underlying effect of FDI on environmental emissions is close to zero, however, after accounting for heterogeneity in the studies, we find that FDI significantly reduces environmental emissions. Results remain robust after disaggregating the effect for countries at different levels of development as well as for different pollutants. One important and frequently-raised issue about foreign direct investment (FDI) is the potentially negative consequences for the environment. The potential environmental cost due to increased emissions may undermine the economic gains associated with increases in FDI inflow. Although the literature is dominated with this adverse view of FDI on the environment, there is also a possibility that FDI can contribute to a cleaner environment, especially, if FDI comes with green technologies and this creates spillovers for domestic industries. Theoretically, the effect of FDI on the environment can be negative or positive. To deal with the theoretical ambiguity about the FDI environment nexus, many empirical studies have been conducted but their results only reinforce the controversy as they produce contrasting results. We conduct a meta-analysis of the effect of FDI on environmental emissions using 65 primary studies that produce 1006 elasticities. Our results show that the underlying effect of FDI on environmental emissions is close to zero, however, after accounting for heterogeneity in the studies, we find that FDI significantly reduces environmental emissions. Results remain robust after disaggregating the effect for countries at different levels of development as well as for different pollutants. One important and frequently-raised issue about foreign direct investment (FDI) is the potentially negative consequences for the environment. The potential environmental cost due to increased emissions may undermine the economic gains associated with increases in FDI inflow. Although the literature is dominated with this adverse view of FDI on the environment, there is also a possibility that FDI can contribute to a cleaner environment, especially, if FDI comes with green technologies and this creates spillovers for domestic industries. Theoretically, the effect of FDI on the environment can be negative or positive. To deal with the theoretical ambiguity about the FDI environment nexus, many empirical studies have been conducted but their results only reinforce the controversy as they produce contrasting results. We conduct a meta-analysis of the effect of FDI on environmental emissions using 65 primary studies that produce 1006 elasticities. Our results show that the underlying effect of FDI on environmental emissions is close to zero, however, after accounting for heterogeneity in the studies, we find that FDI significantly reduces environmental emissions. Results remain robust after disaggregating the effect for countries at different levels of development as well as for different pollutants.
Original languageEnglish
Place of PublicationThe Hague
PublisherInternational Institute of Social Studies (ISS)
Number of pages41
Publication statusPublished - 2019

Publication series

SeriesISS working papers. General series
Volume650

Bibliographical note

link in repub: https://repub.eur.nl/pub/121765

Series

  • ISS Working Paper-General Series

Fingerprint

Dive into the research topics of 'The effect of FDI on environmental emissions : Evidence from a meta-analysis'. Together they form a unique fingerprint.

Cite this