FDI inflows and carbon emissions: new global evidence

This study investigates the environmental consequences of foreign direct investment (FDI) inflows, focusing on their impact on carbon (CO2) emissions. The findings indicate that FDI inflows significantly contribute to increased CO2 emissions, both in total quantity and intensity. Low- and middle-income nations are disproportionately affected. Additionally, higher levels of institutional quality, financial development, and technological innovation amplify the positive relationship between FDI and emissions. This positive link can be explained by the scale effect, where increased economic activity from FDI leads to higher energy use and emissions. This study also reveals the dual role of institutional quality, financial development, and technological innovation in moderating the environmental impact of FDI. While these factors facilitate growth and attract investment, they can also result in increased emissions if sustainability is not prioritized. These findings offer meaningful implications for policymakers seeking to balance economic growth with sustainability, especially in regions vulnerable to increased emissions due to FDI.