How environmental regulation influences the relationship between FDI and carbon dioxide emissions

Abstract This study explores how environmental regulation affects the link between foreign direct investment (FDI) and carbon dioxide (CO 2 ) emissions in 39 developed and emerging economies from 1990 to 2020. Using the autoregressive distributed lag (ARDL) method and panel Granger causality tests, we confirm the pollution haven hypothesis in emerging economies and the pollution halo hypothesis in developed economies. In the long run, we find that stricter environmental regulations strengthen the negative impact of FDI on CO 2 emissions in developed economies. However, this moderating effect is not significant in emerging economies. In the short run, environmental regulation does not appear to influence the FDI–CO 2 relationship in both emerging and developed economies.