Reexamining the impact of foreign direct investment on carbon emissions: does per capita GDP matter?

Abstract

Research on the impact of foreign direct investment (FDI) on environmental quality has not reached consensus. This paper examines the potential structural break in the relationship between FDI and the environment from the perspective of economic scale. The results of the panel threshold estimation for 67 countries of different income groups show that the impact of FDI on carbon emissions shifts from positive to negative at different income level stages, using GDP as the threshold. This conclusion is further verified by the group regression results of the robustness test. When the GDP per capita is below $541.87, FDI shows a significant positive impact on carbon emissions, and this interval corresponds to a wide range of low-income economies today, however, when the GDP per capita exceeds $541.87, this positive impact almost disappears. The negative impact of FDI on carbon emissions manifests itself once the GDP per capita reaches $46515, and the sample countries corresponding to this interval since 2014 are mainly Switzerland, Iceland, Denmark, Sweden, the United States, Singapore, and Australia. Therefore, we call on countries to raise their income levels so that they can cross the lower threshold and thus take advantage of the emission reduction effect provided by FDI.