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Foreign Direct Investment – Impact on the Environment. Allie Frantz af1760a@american.edu American University School of International Service. Research Question. Does a higher level of FDI lead to environmental damage? Ho: There is no relationship between FDI and environmental damage.
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Foreign Direct Investment – Impact on the Environment Allie Frantz af1760a@american.edu American University School of International Service
Research Question • Does a higher level of FDI lead to environmental damage? • Ho: There is no relationship between FDI and environmental damage. • H1: There is a relationship between FDI and environmental damage
Literature Review • Sadorsky, Perry (2010). The Impact of Financial Development on Energy Consumption in Emerging Economies. Energy Policy, 38 (5), 2528. • Hypothesis: Demand for energy and energy consumption rise with financial development. • Result: More active stock markets correlate with an increase in energy consumption, however, other financial development indicators such as FDI and bank deposits do not have the same impact on energy consumption. • Tamazian Artur, Juan Pineiro Chousa, and Krishna Chaitanya Vadlamannati (2009). Does higher economic and financial development lead to environmental degradation: Evidence from BRIC countries. Elsevier Energy Policy 37, 246-253. • Hypothesis: Economic development as well as financial development will eventually lead to fewer CO2 emissions. • Result: Decrease in emissions when there was a higher level of research and development investments. Three financial development variables: FDI, financial liberalization, and capital account convertibility were associated with lower levels of CO2 emissions.
Data • World Bank – World Development Indicators Data Catalog • All variables were interval-ratio • Unit of analysis – Country • Dependent variable = CO2 emissions (measured in metric tons) • Main independent variable = FDI (net inflows) • Other independent variables = GDP per capita, Urban population, Livestock Index, and Internet Users
Policy Implications and Recommendations • FDI is not a significant contributor to CO2 emissions • GDP, Urban population, and livestock are more important areas to focus on • Provide incentives for FDI which are environmentally focused (ex: green energy such as wind technology)
