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Asymmetric impacts of foreign direct investment inflows, financial development, and social globalization on environmental pollution

Qiu Shi Deng, Rafael Alvarado (), Lizeth Cuesta, Brayan Tillaguango, Muntasir Murshed, Abdul Rehman, Cem Işık and Michelle López-Sánchez

Economic Analysis and Policy, 2022, vol. 76, issue C, 236-251

Abstract: This study examines the impacts of social globalization, foreign direct investment inflows, and financial development on environmental pollution in the context of a globally-representative sample of 107 countries. Unlike previous studies in the literature that have focused primarily on examining individual indicators of environmental degradation, a holistic index of environmental degradation is used in this current study. In addition, second-generation cointegration techniques and threshold regression estimators are used to examine the existence of long-term relationships and verify non-linear links between the variables of interest. The results confirm a long-term equilibrium relationship between these variables in the context of the whole panel and also for the sub-panels from different income groups. In addition, statistical evidence regarding the threshold environmental effects of foreign direct investment inflows, financial development, and social globalization are also revealed. Especially concerning foreign direct investment inflows, we find that for in the entire panel and the upper-middle-income and low-income sub-panels, foreign direct investment reduces and increases air pollution before and after the threshold level. In lower-middle-income countries, foreign direct investment inflows cause increased environmental pollution before and after the threshold. Regarding financial development, we observe that before and after the threshold levels, financial development increases and decreases environmental pollution, respectively. Finally, it is identified that social globalization increases environmental pollution in the selected countries and the results were homogenous for both the full panel and sub-panels. Finally, the results of the causality analysis provide evidence in favor of the causal relationships between the variables of interest, but it is also observed that the causal directions are heterogeneous across the full panel and sub-panels. Thus, these findings impose key policy implications concerning the attainemnt of the environment-related Sustainable Development Goals declared by the United Nations.

Keywords: Environmental pollution index; Social globalization index; Threshold regression; Financial development; Environmental sustainability; Sustainable Development Goals (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (10)

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DOI: 10.1016/j.eap.2022.08.008

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