Interrelationships among Trade Openness, Foreign Direct Investment and Environmental Pollution: A study on Selected Developing Countries of the World

Abstract

In the recent years, environmental quality is degrading over time due to adoption of several economic policies across the world, especially in developing countries. Rising magnitudes of trade openness (TRO) and international capital flow in terms of foreign direct investment (FDI) are the major ones out of them. The growth impacts of these policies are well known to many countries. Besides, there are rising pollution levels in terms of different pollutants as the by-product of these liberalization policies. Under the backdrop, the present study examines the relationship among FDI, trade openness and CO2 emission in 26 developing nations with upper- as well as lower-middle income levels. The study finds long-run stable relationship among the three in four countries, namely Argentina, Jordan, Russia and Thailand. The estimated vector error correction model shows that the long-run causality runs from FDI and TRO to CO2 in Argentina, Jordan and Russia. The Block Erogeneity test results for the countries having no such long run relationships show a set of mixed outcomes. The different short-run causal relations are per capita FDI to per capita CO2, per capita TRO to per capita CO2, combined per capita FDI and TRO to per capita CO2, per capita CO2 to per capita FDI etc.