Dynamic Effects of Economic Growth, Foreign Direct Investment, and Trade Openness on Environmental Quality: Evidence From Asian Economies

Abstract

The main purpose of this article is to investigate the impact of economic growth, foreign direct investment (FDI), and trade openness (TO), and the Asian and global financial crisis on environmental quality based on the environmental Kuznets curve (EKC) hypothesis on panel data of 32 Asian economies over the 1991–2019 period. Our study supports the EKC hypothesis, implying that economic growth increases emissions to a certain point, after which growth helps reduce carbon emissions. By employing several panel data econometric estimation techniques (such as ordinary least squares, fixed effects models, and difference-generalized method of moments estimations), the study also shows robust findings that FDI could reduce carbon emissions in the Asian region by welcoming environmentally friendly technology and know-how into the economy. However, though the study finds that financial crises reduce emissions in Asian countries, the increase of TO in this region leads to an increase in emissions and causes of environmental degradation. Thus, to ensure environmental sustainability, Asian policymakers should formulate lucrative policies to attract FDI, and trade policies should also be revised.

Keywords

• foreign direct investment
• trade openness
• sustainable development
• economic growth
• carbon emission