Globalization and the Environmental Impact of Sectoral FDI

Nadia Doytch () and Merih Uctum

No 12, Working Papers from City University of New York Graduate Center, Ph.D. Program in Economics

Abstract: We analyze the environmental impact of capital inflows and investigate the halo effect (FDI improves the environment). We control for the type of FDI inflows, the EKC (Environmental Kuznets Curve) effect and country income level, and find (i) a differential industry effect: while total foreign investment in aggregate has a negative effect on all countries, this can be traced in particular to capital flows to manufacturing and nonfinancial services sectors.; (ii) an income inequality effect: foreign investment flowing into poorer countries has harmful effects on environment consistent with the race-to-the bottom argument, while capital flowing to richer countries has a beneficial effect and supports the halo effect; (iii) the EKC effect depends on the sector absorbing the FDI and again income level of the country. We show that studies relying only on firm level or aggregate data, miss the sectoral spillovers, and thus may lead to misleading conclusions.

Keywords: Sectoral FDI; environmental spillovers; dynamic panel (search for similar items in EconPapers)
JEL-codes: F21 Q5 (search for similar items in EconPapers)
Pages: 24
Date: 2016-08-24
New Economics Papers: this item is included in nep-env and nep-int
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Citations: View citations in EconPapers (69)

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Journal Article: Globalization and the environmental impact of sectoral FDI (2016)
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