The complex relationship between carbon dioxide emissions, foreign direct investment, and economic growth in Asian countries

This study investigates the complex relationship between carbon dioxide (CO2) emissions, foreign direct investment (FDI), and economic growth in 42 Asian countries from 2000 to 2022 by employing the fixed-effect (FE) and two-stage least squares (2SLS) methods for panel data. Our results provide important findings. First, we observed a bidirectional correlation between CO2 emissions and economic growth, wherein economic growth increases CO2 emissions and higher CO2 emissions subsequently reduce economic growth. Second, we found that FDI inflow increases economic growth; this is stronger in countries that have a low level of development. Third, we identified a mediating role of CO2 emissions in the relationship between FDI inflow and economic growth; while FDI inflows directly enhance economic growth, they also indirectly reduce economic growth through increasing CO2 emissions. Finally, we found that FDI plays a moderating role in the relationship between CO2 emissions and economic growth, particularly in countries with low levels of development. Specifically, FDI inflows mitigate the negative impact of CO2 emissions on economic growth, indicating a potential pathway for sustainable development in developing Asian countries. These findings highlight the interdependencies among CO2 emissions, FDI, and economic growth, providing valuable insights for policymakers in Asian countries. Based on our findings, governments should focus on FDI attracting policy, sustainable investment that supports both economic development and environmental protection, aiming to achieve the Sustainable Development Goals in these economies.