Foreign investment and air pollution Do good governance and technological innovation matter外国投资和空气污染外文文献

Contents lists available at ScienceDirect Environmental Research journal homepage: Foreign investment and air pollution: Do good governance and technological innovation matter? Anis Omria,b, Tarek Bel Hadja,c aDepartment of Business Administration, College of Business and Economics, Qassim University, P.O.Box: 6640, Buraidah, 51452, Qassim, Saudi Arabia bDepartment of Economics, Faculty of Economics and Management of Nabeul, University of Carthage, Tunisia cDepartment of Economics, Faculty of Economics and Management of Sousse, University of Sousse, Tunisia A R T I C L E I N F O Keywords: CO2emissions Foreign investment Good governance Technological innovation A B S T R A C T This article examines how good governance and technological innovation complement foreign direct investment (FDI) to mitigate carbon emissions in twenty-three emerging economies for the period 19962014. Based on the Generalized Method of Moments (GMM) approach, we established the following results: First, from the non- interactive regressions, FDI inflows have positive effects on the four indicators of carbon emissions while in- creasing governance quality and technological innovation have negative effects on these indicators. Second, from the interactive regressions, the interactions between FDI and both political and institutional governance decrease the level of CO2emissions. Moreover, the interactions between technological innovation and FDI re- duce CO2emissions in all the estimated models, except in the model pertaining to CO2emissions from electricity and heat production; as a result, environmental quality is improved. Policy implications and future research directions are also discussed. 1. Introduction Air pollution, climate change and globalization (including FDI and trade openness) are three major concerns characterizing the current word economy. Thereby, the consequences of FDI inflows on increasing carbon emissions become a worldwide subject of great importance (Hao and Liu, 2015). The objective of this inquiry fits in this context by in- vestigating the conditional effects of good governance and technolo- gical innovation on the nexus between FDI and carbon dioxide emis- sions in emerging countries. Three strands in policy and scholarly circles justify the positioning of this inquiry: (i) why focusing on emerging economies?; (ii) the impacts of FDI on CO2emissions; (iii) the gaps in earlier literature. We discuss these strands in further detail below. First, there are two reasons why the focus is on emerging markets: Since the early 1990s, policymakers in emerging countries have in- creasingly see FDI inflows as an active factor to import new technolo- gies, finance development, increase productivity, and to speed up economic growth (Billington, 1999; Bevan and Estrin, 2000; Bose and Kohli, 2018). Moreover, the rapid growth experienced by the major of these markets has been, however, accompanied by a severe degradation of the environment, which has resulted in increased levels of global CO2 emissions. For example, four of these countriesBrazil, China, India, and South Africaare among the major emitters of CO2in the world (Ozcan and Apergis, 2017). Second, as governments in emerging economies adopt initiatives and policies designed to reduce the negative impact of FDI on en- vironment, scholars have provided contradictory and inconclusive re- sults. Some scholars document that FDI inflows to emerging market economies are strongly linked to an increase of carbon emissions, supporting the pollution-haven-Hypothesis.1For instance, using data for Vietnam over the period 19762009, Tang and Tan (2015) find that FDI is a crucial determinant of carbon emissions, and the use of clean technologies by foreign investors is essential to reduce air pollution and sustaining economic development. In the case of emerging Asian economies, Hanif et al. (2019) investigate the consequences of fossil fuels, FDI and income growth on environmental degradation during the 19902013 period. They show that FDI is a cause of emissions, con- firming the pollution haven hypothesis. Other scholars find that FDI inflows to emerging economies and reducing carbon emissions are as- sociated over time. For example, Zhang and Zhou (2016) investigate the consequences of FDI inflows on carbon emissions in China during the /10.1016/j.envres.2020.109469 Received 8 November 2019; Received in revised form 20 February 2020; Accepted 30 March 2020 Corresponding author. Department of Business Administration, College of Business and Economics, Qassim University, P.O.Box: 6640, Buraidah, 51452, Qassim, Saudi Arabia. E-mail addresses: .sa, elomrianis (A. Omri). 1Indicates that FDI inflows increase the pollution level in the hosting countries. Environmental Research 185 (2020) 109469 Available online 05 April 2020 0013-9351/ 2020 Elsevier Inc. All rights reserved. T 19952010 period. At the national level, they document that increasing FDI leads to increase carbon emissions, while this impact reduces from the western region to the eastern and central regions, supporting the pollution-halo-hypothesis.2Similarly, in the case of five member countries in the Association of South-East Asian Nations (ASEAN-5), Zhu et al. (2016) investigate the environmental consequences of FDI and energy use using panel quantile regression model. They also vali- date the pollution halo hypothesis. Third, some theoretical and methodological gaps are the origin of these inconclusive results. Theoretically, instead of looking for the conditions through which foreign investment could reduce CO2emis- sions, scholars have only asked for whether foreign investment is compatible with the reduction of carbon emissions or not. To determine these conditions, we referred to the prior researches on the nexus be- tween good governance and CO2emissions, between technological in- novation and CO2emissions, and among governance quality, techno- logical innovation, and FDI (e.g., Sohag et al., 2015; Wu et al., 2017; Peres et al., 2018; Wang et al., 2017; Ali et al., 2019; Khachoo and Sharma, 2016; Li et al., 2019). Based on these studies, we predict that the positive link between FDI and reducing CO2emissions is condi- tioned by the increase of governance quality and technological in- novation. Methodologically, we overcome some limitations in prior literature, which can be resumed as follows: analyzing small samples of countries; and using one indicator of carbon emissions. For that reason, we consider 23 emerging countries and four indicators of carbon emissions: CO2emissions per capita, CO2intensity, CO2emissions from electricity and heat production, and CO2emissions from the use of li- quid fuel. In light of the above three-strands of literature, we want here to re- assess the impact of FDI on carbon emissions by addressing the fol- lowing principal research question: When does FDI reduce CO2emis- sions in emerging economies? In responding to this question, our study provides the following contributions to the ongoing literature. First, we investigate the conditional impacts of good governance and technolo- gical innovation on FDI-carbon emissions nexus in the case of 23 emerging countries using the GMM approach to control for the persis- tence in the dependent variable. Governance quality and technological innovation are used as policy variables, which modulate the negative consequences of FDI on environment. Second, according to the actual literature on the necessity to disclose governance measures to provide room for robustness, we consider six indicators of governance grouped into three main categorieseconomic governance (government effec- tiveness; regulatory quality); political governance (political stability; Voice and Accountability); and institutional governance (control of cor- ruption; rule of law). These six indicators have been also used in the current governance literature (e.g., Omri, 2020). Third, as mentioned above, this study also extends previous literature on the nexus FDI- carbon emissions nexus by considering four indicators of carbon emis- sions: CO2 emissions per capita, CO2 intensity, CO2 emissions from electricity and heat production, and CO2 emissions from the use of li- quid fuel. We begin our analysis by discussing the related literature. We then describe the research design, which describes the used data and methodology, followed by a discussion of the obtained results. The studys conclusion and implication are given in the end. 2. Theoretical background and hypotheses development Analyzing the environmental consequences of FDI constitutes a challenging task for scholars, policymakers, and international agencies in developing economies. The main objective behind this analysis is to help policymakers to build effective policies and strategies in terms of governance and innovation to reduce carbon emissions. In this section, we analyze prior works on the impact of FDI on CO2emissions (2.1.), the link between governance quality, FDI, and CO2emissions (2.2.), and the link between technological innovation, FDI, and CO2emissions (2.3.). We then present our research hypotheses (2.4.). 2.1. FDI and CO2 emissions There are essentially two competing theories regarding the effects of FDI on CO2emissions in the host countries, namely: the pollution haven Hypothesis and the pollution halo hypothesis. The first one states that FDI aggravates environmental damage in developing countries because these countries attract FDI by lowering their environmental regulations. However, for the pollution halo hypothesis, the high technologies and the best management practices transferred by FDI to host countries create pollution halos to reduce carbon emissions by exerting positive externalities. There exist a lot of empirical studies that are interested on ex- amining these two hypotheses; however, there results are mixed and inconclusive. These studies can be divided into three strands. The first one includes the studies that show FDI increases environmental da- magea. For instance, Grimes and Kentor (2003) examine the effect of FDI inflows on CO2emissions in the case of 66 Less Developed Coun- tries (LDCs) during the 19801996 period. They show that FDI posi- tively increases the countries carbon emissions growth, which support the pollution haven Hypothesis. In India, Acharyya (2009) examines the growth effect of FDI inflows and the FDI inflows-induced growth on environmental degradation, and they find that the long run growth effect of FDI inflows on carbon emissions is positive. Using a linear ARDL approach, Seker et al. (2015) analyze the effect of FDI on en- vironmental degradation in Turkey during the 19742010 period. Their finding reveals that the long-run impact of FDI on carbon emissions is positive, but relatively small. Using the same approach, Salahuddin et al. (2018) examine the determinants of environmental degradation in the case of Kuwait, and they show that FDI increases the level of carbon emissions.Usingasimultaneous-equationmodelingapproach, Mohamed and Hammami (2017) conclude that FDI increases environ- mental damage in the MENA region. Similarly, using Bootstrapping ARDL approach, Shahbaz et al. (2018) analyze the determinants of environmental degradation in France during the 19552016 period. They find that FDI inflows increase carbon emissions in France, which support the pollution-haven-hypothesis. The second strand of studies that find FDI reduces carbon emissions. For example, using data of three developing economies receiving the most FDI Brazil, China, and Mexico, Wheeler (2001) shows that their levels of air pollution di- minish with a rise in FDI inflows. For the group of ASEAN countries, Atici (2012) investigates the empirical association between foreign trade and environmental degradation using both fixed- and random effects techniques. Its finding shows that FDI reduces CO2emissions, which indicates that ASEAN economies could beneficiate from the in- flows of FDI to reduce air pollution. Using data for seven selected MENA countries during the 19802011 period, Asghari (2013) examines the presence of pollution halo and haven hypotheses, and their findings indicates that FDI has weak influence on reducing CO2emissions, which weakly supports the halo pollution hypothesis. Zhu et al. (2016) also support this hypothesis in the case of middle and high emissions economies of the Association of South-East Asian Nations (ASEAN). In the case of G20 countries, Paramati et al. (2017) investigate the effect of stock market growth and on per capita CO2emissions, and they conclude that FDI reduces CO2emissions in the long run. The third strand focuses on the studies that find a nonlinear relationship between FDI and carbon emissions. Shahbaz et al. (2015) analyze the quadratic link between FDI inflows and pollution in the case of 99 economies for the 19752012 period. Their findings reveal that, in the case of middle income and global panels of countries, the initial impact of FDI on CO2 2Indicates that FDI exports cleaner technologies from rich to poorer econo- mies and conduct business in an environmentally-friendly manner (Zhang and Zhou, 2016). A. Omri and T. Bel HadjEnvironmental Research 185 (2020) 109469 2 emissions is positive, but after achieves a certain level of FDI, CO2 emissions start to reduce. Omri et al. (2019) confirm this result in the case of Saudi Arabia using FMOLS and DOLS techniques. More recently, Alshubiri and Elheddad (2019) investigate the nonlinearity between CO2emissions and foreign finance in the case of 32 OECD economies using GMM and fixed-effects techniques. They also find that foreign investments increase significantly CO2emissions in the first stages, but after reaching a certain level of FDI, CO2emissions starts to be reduced. We rely on this literature to re-assess the conditions under which FDI is compatible with reducing CO2emissions. We set two principal conditions: good governance and innovation. We predict that the po- sitive link between FDI and reducing CO2emissions is conditioned by the increase of governance quality and technological innovation. 2.2. Role of governance quality The new institutional economics, broadening the scope of neo- classical theory, argues that institutions are obligatory for the efficient functioning of market-based economies (Rutherford, 2001). Earlier literature has also provided empirical support to this concept (e.g., Keefer and Knack, 1997). Many institutional aspects are today a ques- tion of good governance (Gani, 2007). The concept of governance is defined by previous literature as “the traditions and institutions by which authority in a country is exercised. This includes the process by which governments are selected, monitored and replaced; the capacity of the government to effectively formulate and implement sound po- licies; and the respect of citizens and the state for the institutions that govern economic and social interactions among them” (Kaufmann et al., 2011). Kaufmann et al. (1999) suggest six indicators of good governance, namely: voice and accountability; political stability and absence of violence; government effectiveness; regulatory quality; rule of law; and control of corruption. While progress in terms of governance quality differs from one country to another (Kaufmann et al., 2004), the speed and the rhythm of this progress are interesting to attract more FDI (Gani, 2007; Lehnert et al., 2013). So, growing attention started in late 1990 on the nexus between good governance and the inflows of FDI (Mengistu and Adhikary, 2011). Scholars provide three reasons to explain this growing attention: First, FDI inflows are sensitive to the “country-specific poli- tical risk,” indicating that countries with institutional efficiencies, prudential regulations and laws can better attract FDI (Mody and Srinivasan, 1998; Albuquerque, 2003). Second, FDI inflows are also sensitive to the “investment transaction cost”, meaning that interna- tional finance chooses the countries where investors can obtain an adequate financial return on their investments (North, 1990; OECD, 2001). Third, FDI inflows are influenced by investor “confidence and trust” in governments monetary and fiscal policies, as well as in their macroeconomic stability (Acemoglu, 2005; Brouthers et al., 2008; Zhao and Kim, 2011). Thus, well-defined governance systems are widely regarded as a prerequisite for the attractiveness of FDI (Gani, 2007; Lehnert et al., 2013). Many empirical researches find evidence of a positive cross-sectional correlation between the indicators of good governance and FDI (e.g., Globerman and Shapiro, 2002; Gani, 2007; Mengistu and Adhikary, 2011; Nguyen, 2015; Peres et al., 2018). Some other scholars argue that good governance infrastructure is particularly relevant for the reduction of CO2emissions (e.g., Costantini and Monni, 2008; Tamazian and Bhaskara Rao, 2010; Abid, 2016; Wang et al., 2017; Ali et al., 2019). As Panayotou (1997: p.468) states: “whether environmental quality improvements (or reduced degradation) mate- rialize or not, when and how depends critically on government policies, social institutions and the completeness and functioning of markets.” Good governance can potentially enforce and regulate environmentally sound policies to direct societies and individuals towards sustainable use of the environment (Wingqvist et al., 2012). Thus, a well-defined governance system strengthens environmental regulations and im- provesenvironmentalqualityand/ortheseenhancementsin governance raise the requirement for a better quality of the environ- ment by stimulating environmental regulation. (Ozturk and Al-Mulali, 2015). In light of the above arguments, one emphasizing the effect of governance on FDI inflows and the other on CO2emissions, we posit that good governance would also be significant in the FDI-