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<p>This study investigates how environmental taxation influences foreign direct investment (FDI) inflows, economic growth, and carbon dioxide (CO₂) emission efficiency across 73 developing countries from 1995 to 2021. Using a combination of fixed-effects, system GMM, and PROCESS Model 4 estimations, the analysis provides several important insights. The results indicate that environmental taxes directly hinder economic growth by reducing both the growth rate and the value of economic output. They also significantly discourage FDI inflows, suggesting that higher environmental taxes may reduce the investment attractiveness of developing economies. However, environmental taxes on natural resources appear to have no significant effect on either economic growth or FDI. In addition, environmental taxation indirectly constrains growth through its negative impact on FDI, which often serves as a key driver of development. Despite these challenges, the findings highlight that environmental taxes can strengthen the positive relationship between CO₂ emissions and economic growth, reflecting an improvement in emission efficiency.</p>

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Balancing growth and green goals: how environmental tax influences FDI, economic growth, and carbon efficiency in developing countries

  • 期刊论文

  • 发表日期：

    2026年2月20日

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  • Quang Khai Nguyen,
  • Dinh Long Tran,
  • Thi Minh Hue Phan

摘要

This study investigates how environmental taxation influences foreign direct investment (FDI) inflows, economic growth, and carbon dioxide (CO₂) emission efficiency across 73 developing countries from 1995 to 2021. Using a combination of fixed-effects, system GMM, and PROCESS Model 4 estimations, the analysis provides several important insights. The results indicate that environmental taxes directly hinder economic growth by reducing both the growth rate and the value of economic output. They also significantly discourage FDI inflows, suggesting that higher environmental taxes may reduce the investment attractiveness of developing economies. However, environmental taxes on natural resources appear to have no significant effect on either economic growth or FDI. In addition, environmental taxation indirectly constrains growth through its negative impact on FDI, which often serves as a key driver of development. Despite these challenges, the findings highlight that environmental taxes can strengthen the positive relationship between CO₂ emissions and economic growth, reflecting an improvement in emission efficiency.