The Impact of Foreign Direct Investment on CO2 Emissions in ASEAN Countries

Abstract

The aim associated with the present study is to examine the sector-specific foreign direct investment and CO2 emissions. This study employs panel Granger causality tests to investigate the association between sector-specific foreign direct investment and CO2 emissions. Using a sample of 5 ASEAN countries for the period of 1980-2018, we find causality running from foreign direct investment in polluting intensive industries (“the dirty sector”) to CO2 emissions per capita. This result is robust to controlling for other factors associated with CO2 emissions and using the ratio of CO2 emissions to GDP. For other sectors, we find no robust evidence that FDI causes CO2 emissions. These findings are suitable for the regulation making authorities while developing the regulation related to the FDI and carbon emissions. This study provides the guidelines to the upcoming studies who wants to investigate this area in the future and suggested that upcoming studies should add other that FDI factor to investigate the carbon emissions.