Ecological footprint of FDI inflows and income threshold effect: New results with a new approach to income classification

Abstract

This paper explores the potential income threshold effect on the dynamic relationship between ecological footprint (EF) and foreign direct investment (FDI). We analyze a balanced panel of 82 countries over the period 1980–2016 with a dynamic panel threshold model proposed by Seo and Shin (2016) to study the issue. The empirical result suggests a nonlinear relation between EF and its main determinants in high- or low-income regime measured by real GDP per capita. Evidence suggests a positive persistence of EF in rich countries. FDI inflows satisfy both the pollution haven hypothesis for Consumption EF in low-income countries and pollution halo hypothesis for Production EF in high-income countries; the ecological Kuznets curve hypothesis is verified in low-income countries. The impact of exports on Consumption EF is in line with the ecological unequal exchange theory in that they hurt the poor countries but benefit the rich economies.

Keywords

• Nonlinear dynamic panel model
• Income threshold
• FDI
• Pollution haven
• Halo effect