Unveiling the triangular causality between FDI, GDP, and CO2 emissions: Insights from ASEAN-5 countries

Hafizah Hammad Ahmad Khan (), Rosmaiza Abdul Ghani (), Muhammad Hanif Othman () and Handri Handri ()
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Hafizah Hammad Ahmad Khan: Faculty of Business and Management, Universiti Teknologi MARA, Kedah, Malaysia.
Rosmaiza Abdul Ghani: Faculty of Business and Management, Universiti Teknologi MARA, Melaka, Malaysia.
Muhammad Hanif Othman: Faculty of Business and Management, Universiti Teknologi MARA, Kedah, Malaysia.
Handri Handri: Faculty of Economics and Business, Universitas Islam Bandung, Indonesia

Economics Bulletin, 2025, vol. 45, issue 2, 998 - 1012

Abstract: This study investigates the dynamic relationships between FDI, GDP, and CO2 emissions in the ASEAN-5 countries. Using data from 1970 to 2023, the findings of the Toda-Yamamoto non-causality test reveal consistent bidirectional causality between FDI and GDP across the region, highlighting the mutual dependence of foreign investment and economic growth. On the other hand, unidirectional causality from FDI to CO2 emissions in most countries (except Singapore) supports the pollution haven hypothesis, emphasizing the environmental costs associated with FDI inflows. Furthermore, the unidirectional causality from GDP to CO2 emissions in Malaysia and the bidirectional causality observed in the Philippines underscores the need for Malaysia to prioritize decarbonizing its industrial base and adopting cleaner technologies while the Philippines must address the feedback effects by integrating sustainable practices into its growth strategies to ensure that environmental challenges do not hinder long-term economic development. Overall, the findings underscore the importance of aligning foreign investment policies with environmental sustainability goals to achieve balanced economic growth.

Keywords: Foreign Direct Investment; Gross Domestic Product; CO2 emissions; Johansen cointegration; Toda-Yamamoto non-causality test; ASEAN (search for similar items in EconPapers)
JEL-codes: F2 Q5 (search for similar items in EconPapers)
Date: 2025-06-30
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