Asymmetric Effects of Fiscal Policy and Foreign Direct Investment Inflows on CO 2 Emissions—An Application of Nonlinear ARDL

Thanh Phuc Nguyen () and Trang Thi-Thuy Duong
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Thanh Phuc Nguyen: Faculty of Finance and Banking, Van Lang University, Ho Chi Minh City 70000, Vietnam
Trang Thi-Thuy Duong: School of Media Design, University of Economics Ho Chi Minh City, Ho Chi Minh City 70000, Vietnam

Sustainability, 2025, vol. 17, issue 6, 1-21

Abstract: Research on the impact of fiscal policy and foreign direct investment (FDI) on environmental quality has yielded conflicting results on their effects on carbon dioxide emissions. To further explore the asymmetric influences of these two critical factors on environmental quality, we employed a nonlinear ARDL approach to examine how fiscal policy (GOEX), FDI inflows, and other drivers of CO 2 emissions, such as trade openness, financial development, and economic growth, have affected environmental quality in Vietnam from 1990 to 2022. Our findings indicate that a positive shock in GOEX results in decreased emissions, whereas a negative shock in GOEX leads to increased emissions, challenging previous research that suggests that higher expenditures typically harm the environment. We also observe that positive changes in FDI result in higher CO 2 emissions, whereas negative FDI shifts have no significant impact. Additionally, our study reveals that trade openness improves environmental conditions, whereas economic growth and financial development contribute to increased CO 2 emissions. The responses of CO 2 emissions to the asymmetric effects of fiscal policy, FDI inflows, and other determinants in the short term last in the long term. These insights are valuable for policymakers in developing environmental sustainability strategies to mitigate climate change by addressing fiscal policies and other determinants of CO 2 emissions.

Keywords: fiscal policy; foreign direct investment inflows; CO 2 emissions; nonlinear ARDL (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2025
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