How Does Foreign Direct Investment Affect Emission Intensity Embedded in Trade?

Pinar Tat (), Abdullah Altun () and Halit Yanıkkaya
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Pinar Tat: Department of Economics, Gebze Technical University
Abdullah Altun: Department of Economics, Gebze Technical University

No 2026-01, Working Papers from Gebze Technical University, Department of Economics

Abstract: This paper examines the impact of foreign direct investment (FDI) on the trade-related intensity of greenhouse gas (GHG) emissions. By integrating sector-level FDI inflows with detailed trade-related emission data, the study goes beyond conventional approaches by focusing not only on aggregate emissions but specifically on emissions embedded in exports. Using a comprehensive dataset covering 38 countries and 35 sectors from 2005 to 2020, the analysis provides new insights into how multinational production activities lead to global environmental outcomes. The findings reveal that FDI inflows increase emission intensity in trade in both developed and developing countries. The findings are particularly valid for the manufacturing sectors, regardless of trading partners. These results support the pollution haven and race to the bottom hypotheses, highlighting the need for stronger international environmental coordination. The study thus fills a critical gap in the literature by linking international investment strategies to trade-induced emissions and offers clear policy recommendations to align FDI policies with global climate objectives.

Keywords: Foreign Direct Investment (FDI); Trade-related Emissions; Emission Intensity; Greenhouse Gases (GHG) (search for similar items in EconPapers)
JEL-codes: F18 F21 Q53 Q56 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2026-09-14
New Economics Papers: this item is included in nep-ene, nep-env, nep-inv and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:geb:wpaper:2026-01

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