Nexus between Environmental Quality with Economic Growth, Renewable Energy Consumption, and Foreign Direct Investment in Vietnam: Evidence from non-linear ARDL approach

Le Phuong Nam (), Pham Thanh Lan (), Nguyen Manh Hieu (), Nguyen Cong Tiep (), Nguyen Thi Bich Hang () and Louie Marie Eluriaga ()

International Journal of Economic Policy, 2024, vol. 4, issue 4, 51 - 72

Abstract: Purpose: The purpose of this article is to examine the relationship between economic growth and environmental quality in Vietnam. Methodology: The research employed is the non-linear Autoregressive Distributed Lag (NARDL) approach, utilizing time-series data from 1986 to 2022. The strength of NARDL lies in its consideration of both increasing and decreasing trends in independent variables such as Economic Growth, Energy from Renewable Resources and Foreign Direct Investment (FDI) in a non-linear relationship with the dependent variable, CO2. Findings: The research findings indicate that overall economic growth is positively associated with an increase in CO2 emissions, aligning with the Environmental Kuznets Curve (EKC) theory in the first stage of the inverted U-shape. However, the EKC hypothesis is not supported in later stages, as environmental degradation persists despite economic growth. Renewable resources in primary energy have increased from 6% in 1986 to 16% in 2022, while FDI has risen from 0.03% of GDP in 1986 to 4.3% of GDP in 2021, resulting in a reduction in CO2 emissions. In other words, the Pollution Haven Hypothesis does not hold in Vietnam. With a net-zero CO2 target by 2050, Vietnam necessitates rapid, short-term changes to neutralize carbon emissions effectively in the long term. Unique Contribution to Theory, Practice and Policy: To simultaneously ensure economic growth while adhering to Vietnam's carbon neutrality objectives, followings solutions are recommended: (1) increasing the proportion of renewable energy sources and reducing fossil fuel dependency; (2) incorporating modern, environmentally friendly technologies in the industrial sector to diminish resource-intensive practices and reduce dependence on fossil fuels; (3) establishing a legal framework and conditions to attract FDI in technology-intensive sectors, thereby mitigating carbon emissions.

Keywords: Zero Carbon target; Environmental Degradation; EKC hypothesis; Renewable Energy (search for similar items in EconPapers)
Date: 2024
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