An Empirical Re-Investigation for Verifying the Pollution Haven Hypothesis Concerning the Foreign Direct Investment-Carbon Intensity Nexus

Abstract

Since the BRICS countries make noteworthy contributions to global economic outputs and also account for around half of the total volume of carbon dioxide emitted worldwide, greening the economic growth processes and facilitating clean energy transition across these emerging nations have significant relevance at the global scale. Therefore, this study aims to assess the long-run determinants of carbon intensity levels of economic output and energy use in the context of the BRICS countries over the period spanning from 1998 to 2021. Specifically, this analysis is conceptualized to examine the non-linear carbon intensity-influencing impacts of incoming foreign direct investment through the lens of the widely-acclaimed pollution haven hypothesis, while controlling for other major macroeconomic factors. In this regard, advanced panel data estimators that are robust to negating issues related to cross-sectional dependence, heterogeneous slope coefficients, and endogeneity are utilized. In a nutshell, the results ultimately verify the pollution haven hypothesis by confirming the inverted U-shaped nexus between foreign direct investment inflows and carbon intensity levels of economic output. On the other hand, incoming foreign direct investment is found to monotonically increase, albeit at a decreasing rate, the carbon intensity levels of energy use. Besides, more renewable energy deployment and technological progress are identified as carbon intensity-inhibiting factors while institutional quality improvement, financial development, and international trade are responsible for amplifying carbon intensity levels, especially those related to economic output production. Hence, based on these findings, several policies are recommended for the BRICS countries to gradually green their economic growth processes and successfully undergo the clean energy transition so that their future carbon intensity levels can be contained to a large extent. These findings are expected to guide the BRICS nations in enhancing compliance with the pledges they made by signing the 2030 Sustainable Development Goals agenda of the United Nations.