Does Domestic Investment Have a Role in An Economy? An Analysis of the Connection Between CO2 Energy and Growth in the US and Canada

This study examines the relationship between domestic investment, economic growth, and carbon dioxide (CO2) emissions in the United States and Canada from 1990 to 2021 using ARDL bound testing. The findings reveal a long-run relationship between the variables in both countries. In the US, short-run results show a positive link between domestic investment and CO2 emissions, while economic growth has no significant impact. In the long run, only domestic investment positively influences CO2 emissions. Other factors such as trade openness exhibit positive short-run effects but long-run negative relationships with CO2 emissions, while fossil fuel consumption positively impacts emissions. Granger causality tests reveal bidirectional links between fossil fuel consumption and CO2 emissions, and a unidirectional causality from trade openness to CO2 emissions in the US economy. In Canada, positive short- and long-term connections exist between domestic investment and CO2 emissions. FDI and economic growth exhibit mixed short-run effects on emissions but positive long-term impacts. Fossil fuel consumption negatively affects emissions in both the short and long term, while trade openness shows a positive long-term effect. The findings stress the need for targeted policies to balance economic growth, investments, and environmental sustainability, including promoting renewable energy, sustainable trade, and clean technologies.