Revisiting the Role of Fiscal Policy, Financial Development, and Foreign Direct Investment in Reducing Environmental Pollution during Globalization Mode: Evidence from Linear and Nonlinear Panel Data Approaches

Mustafa Kamal, Muhammad Usman, Atif Jahanger and Daniel Balsalobre-Lorente
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Mustafa Kamal: Department of Basic Sciences, College of Science and Theoretical Studies, Saudi Electronic University, Dammam 31454, Saudi Arabia
Muhammad Usman: Institute for Region and Urban-Rural Development, Wuhan University, Wuhan 430072, China
Daniel Balsalobre-Lorente: Department of Political Economy and Public Finance, Economics and Business Statistics and Economic Policy, University of Castilla-La Mancha, 16002 Cuenca, Spain

Energies, 2021, vol. 14, issue 21, 1-25

Abstract: Fiscal policy is a crucial government tool for influencing and managing the national economy and creating a strong incentive for low carbon investment. Previous literature has reputable evidence that improving fiscal policy enhances environmental quality. However, the literature fails to classify the exact turning level (threshold point) below/above which the association may be negative or positive. In this regard, this research investigates the nexus between fiscal policy, foreign direct investment, financial development, trade openness, urban population, gross capital formation, labour force, and CO 2 emissions in the era of globalization. The panel data set contained 105 countries over the period from 1990 to 2016. The empirical findings are estimated through linear and nonlinear panel data approaches such as fully modified ordinary least square and panel threshold regression. The subsequent findings are established: first, fiscal policy and globalization significantly increase environmental pollution. Second, the empirical results confirm the existence of the pollution haven hypothesis (PHV). Third, financial development and gross fixed capital formation are also considered some of the most crucial indicators to increase pollution levels. Fourth, trade openness, urban population, and labour force improve environmental quality. Fifth, panel threshold regression discovers that countries maintain a minimum level of fiscal policy at ?1.2889. Based on these empirical findings, this study suggests that policymakers and governments of these countries should take steps to restructure their industrial sector and design macroeconomic-level carbon-free policies to support the implementation of low-energy-intensive and lower carbon production technologies.

Keywords: CO 2 emission; globalization; fiscal policy; pollution haven hypothesis; panel threshold model (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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