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<p>The escalating impact of climate change stemming from economic activities necessitates thoroughly examining the nexus between the various factors that influence the environment. Therefore, this research investigates the influence of FDI inflows in manufacturing, construction, and electricity generation sectors on carbon emissions and the Environmental Performance Index (EPI) across 21 countries between 2010 and 2022. The research utilizes dynamic panel data techniques such as the system generalized method of moments (Sys-GMM) and difference-GMM to establish empirical evidence about sectoral FDI and the environment. FDI flows in the construction sector negatively influence resource-rich nations, supporting both the pollution haven and resource curse hypothesis. Moreover, findings show that regulatory quality significantly determines sustainable sectoral FDI flows in resource-scarce countries. Furthermore, the interaction of growth with sectoral FDI shows that FDI flows in the construction industry led to environmental deterioration. However, this is a small effect that becomes insignificant in cross-country analysis. Additionally, a difference-in-differences technique was adopted to compare carbon emissions before and after the introduction of the UN sustainable development goals (SDGs), significantly influencing carbon emission reduction. This research proposes essential policy measures that consist of strengthened environmental laws and incentives to fulfill SDGs.</p>

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Foreign investment and local emissions: Decoding the sectoral FDI-Environment nexus

  • 期刊论文

  • 发表日期：

    2025年10月31日

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  • Beenish Amir,
  • Saba Fazal Firdousi,
  • Ayesha Afzal

摘要

The escalating impact of climate change stemming from economic activities necessitates thoroughly examining the nexus between the various factors that influence the environment. Therefore, this research investigates the influence of FDI inflows in manufacturing, construction, and electricity generation sectors on carbon emissions and the Environmental Performance Index (EPI) across 21 countries between 2010 and 2022. The research utilizes dynamic panel data techniques such as the system generalized method of moments (Sys-GMM) and difference-GMM to establish empirical evidence about sectoral FDI and the environment. FDI flows in the construction sector negatively influence resource-rich nations, supporting both the pollution haven and resource curse hypothesis. Moreover, findings show that regulatory quality significantly determines sustainable sectoral FDI flows in resource-scarce countries. Furthermore, the interaction of growth with sectoral FDI shows that FDI flows in the construction industry led to environmental deterioration. However, this is a small effect that becomes insignificant in cross-country analysis. Additionally, a difference-in-differences technique was adopted to compare carbon emissions before and after the introduction of the UN sustainable development goals (SDGs), significantly influencing carbon emission reduction. This research proposes essential policy measures that consist of strengthened environmental laws and incentives to fulfill SDGs.