Foreign direct investment and carbon emissions in developing economies: The moderator of renewable energy consumption

Type of the article: Research ArticleAbstractThis study delves into the combined impact of foreign direct investment (FDI) and renewable energy consumption (REC) on carbon emissions (CO2) in developing countries. The primary objective is to assess the moderating role of renewable energy consumption in the impact of FDI on CO2 emissions in 50 developing countries from 2013 to 2021. To ensure rigorous accuracy in addressing potential endogenous issues in the proposed model, this study employs a two-step systematic generalization estimation (S-GMM) method. The results show that the individual impact of FDI on CO2 emissions is positive and statistically significant, further verifying the Pollution Haven Hypothesis. Meanwhile, the combined impact of FDI and REC is inversely related to CO2 emissions. This is considered a significant finding because renewable energy consumption can mitigate the negative impact of FDI on CO2 emissions, supporting the Pollution Halo Hypothesis. Furthermore, REC and innovation are important supporting factors in emission reduction, implying that if developing countries prioritize clean energy use and clean technology transfer, it will significantly reduce environmental pressure. On the other hand, trade openness, natural resource rents, and economic growth have statistically significant positive effects on CO2 emissions; increases in these variables lead to higher CO2 emissions. Overall, the importance of REC shows that policies promoting clean energy transition are necessary for FDI to play a positive role in reducing carbon emissions instead of becoming an increasing source of environmental pollution.AcknowledgmentWe are grateful for the valuable contributions made by the peer reviewers in shaping this paper into its final form. Their commitment to scholarly excellence and their dedication to advancing the field have been instrumental in improving the quality and impact of this research.