Effect of foreign direct investments, economic development and energy consumption on greenhouse gas emissions in developing countries

Abstract

In accordance with the Sustainable Development Goal 17 of improving global partnership for sustainable development, this study examined the effect of foreign direct investment inflows, economic development, and energy consumption on greenhouse gas emissions from 1982 to 2016 for the top five emitters of greenhouse gas emissions from fuel combustion in the developing countries, namely; China, India, Iran, Indonesia and South Africa. The study employed a panel data regression with Driscoll-Kraay standard errors, U test estimation approach and panel quantile regression with non-additive fixed-effects. The study found a strong positive effect of energy consumption on greenhouse gas emissions and confirmed the validity of the pollution haven hypothesis. The environmental Kuznets curve hypothesis is valid for China and Indonesia at a turning point of US$ 6014 and US$ 2999; second, a U-shape relationship is valid for India and South Africa at a turning point of US$ 1476 and US$ 7573. Foreign direct investment inflows with clean technological transfer and improvement in labour and environmental management practices will help developing countries to achieve the sustainable development goals. Mitigation of greenhouse gas emissions depends on enhanced energy efficiency, adoption of clean and modern energy technologies, such as renewable energy, nuclear, and the utilization of carbon capture and storage for fossil fuel and biomass energy generation processes.

Keywords: China; EKC hypothesis; Environmental pollution; Panel quantile regression; Pollution haven hypothesis; South Africa.