Foreign direct investment, trade openness, and environmental sustainability in global developing countries: does renewable energy play a role?

As the world confronts intensifying environmental challenges, understanding the conditional effects of globalization on environmental sustainability is critical for achieving Sustainable Development Goals (SDGs) 7 and 13. This study examines the environmental impact of foreign direct investment (FDI) and trade openness (TOP) across 115 developing countries from 1993 to 2020, while evaluating whether renewable energy consumption (REC) conditions these effects. Environmental pollution is proxied by carbon dioxide (CO₂), nitrous oxide (N₂O), and methane (CH₄) emissions. Using Fixed Effects and system GMM estimators, the results reveal that FDI and TOP exert a positive and significant direct effect on emissions, providing strong support for the Pollution Haven Hypothesis in fossil-fuel-dependent environments. However, REC demonstrates both a direct mitigating effect and a significant moderating role. As renewable energy penetration increases, the marginal pollution impact of FDI and TOP declines substantially, indicating a conditional transition toward Pollution Halo dynamics. Heterogeneity analysis further reveals that this moderating effect is considerably stronger in upper-middle-income countries compared to low- and lower-middle-income economies, reflecting differences in institutional capacity, technological absorptive ability, and structural transformation. The findings suggest that globalization’s environmental consequences are not uniform but depend critically on energy structure and development stage. By integrating renewable energy and income heterogeneity into the Pollution Haven–Pollution Halo framework, this study demonstrates that clean energy transition can transform globalization from an environmental liability into a sustainability-enhancing mechanism.