Foreign Direct Investment and Environmental Quality: Revisiting the EKC in Latin American Countries

In this study we aim to test the effects of foreign direct investment (FDI) on carbon emissions (CO<sub>2</sub>) in 20 Latin American countries during the period of 1990–2018. Based on the atlas method of the World Bank, we divided the countries into three groups according to their real...

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Autores principales:	Wilman-Santiago Ochoa-Moreno, Byron Alejandro Quito, Carlos Andrés Moreno-Hurtado
Formato:	article
Lenguaje:	EN
Publicado:	MDPI AG 2021
Materias:	FDI carbon emissions EKC pollution haven hypothesis Latin America environmental quality Environmental effects of industries and plants TD194-195 Renewable energy sources TJ807-830 Environmental sciences GE1-350
Acceso en línea:	https://doaj.org/article/5f8980c3b31049abab07eb4a39d6cd6b
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spelling	oai:doaj.org-article:5f8980c3b31049abab07eb4a39d6cd6b2021-11-25T19:02:58ZForeign Direct Investment and Environmental Quality: Revisiting the EKC in Latin American Countries10.3390/su1322126512071-1050https://doaj.org/article/5f8980c3b31049abab07eb4a39d6cd6b2021-11-01T00:00:00Zhttps://www.mdpi.com/2071-1050/13/22/12651https://doaj.org/toc/2071-1050In this study we aim to test the effects of foreign direct investment (FDI) on carbon emissions (CO<sub>2</sub>) in 20 Latin American countries during the period of 1990–2018. Based on the atlas method of the World Bank, we divided the countries into three groups according to their real gross national income per capita: high-income, upper-middle-income and lower-middle-income countries. We used cointegration techniques and causality tests to evaluate the relationship between the variables. To assess the strength of the cointegration vector, we applied the dynamic ordinary least squares (DOLSs) model for individual countries and the dynamic panel ordinary least squares (PDOLSs) model for groups of countries. The results suggest that the entry of FDI into Latin American (LA) countries increases CO<sub>2</sub> emissions, affecting the environmental quality. These findings disagree with the environmental Kuznets curve (EKC) hypothesis but, in contrast, they are in line with the pollution haven hypothesis (PHH). Moreover, we show evidence in long-term equilibrium relationship between FDI input and CO<sub>2</sub> emissions, which is not the case for the short-term equilibrium. Some additional results suggest that FDI flows do not cause the CO<sub>2</sub> emissions in LA countries. The empirical findings suggest policymakers to design policies to “the second-best theory”, targeting FDI flows to their economies to solve economic problems in the short term, but thereafter they may guarantee the reduction in environmental pollution, based on environmentally responsible FDI and stronger regulations. In other words, the transition from a pollution haven to the applicability of the environmental Kuznets curve (EKC). This study contributes with scarce empirical evidence for LA countries in this issue.Wilman-Santiago Ochoa-MorenoByron Alejandro QuitoCarlos Andrés Moreno-HurtadoMDPI AGarticleFDIcarbon emissionsEKCpollution haven hypothesisLatin Americaenvironmental qualityEnvironmental effects of industries and plantsTD194-195Renewable energy sourcesTJ807-830Environmental sciencesGE1-350ENSustainability, Vol 13, Iss 12651, p 12651 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	FDI carbon emissions EKC pollution haven hypothesis Latin America environmental quality Environmental effects of industries and plants TD194-195 Renewable energy sources TJ807-830 Environmental sciences GE1-350
spellingShingle	FDI carbon emissions EKC pollution haven hypothesis Latin America environmental quality Environmental effects of industries and plants TD194-195 Renewable energy sources TJ807-830 Environmental sciences GE1-350 Wilman-Santiago Ochoa-Moreno Byron Alejandro Quito Carlos Andrés Moreno-Hurtado Foreign Direct Investment and Environmental Quality: Revisiting the EKC in Latin American Countries
description	In this study we aim to test the effects of foreign direct investment (FDI) on carbon emissions (CO<sub>2</sub>) in 20 Latin American countries during the period of 1990–2018. Based on the atlas method of the World Bank, we divided the countries into three groups according to their real gross national income per capita: high-income, upper-middle-income and lower-middle-income countries. We used cointegration techniques and causality tests to evaluate the relationship between the variables. To assess the strength of the cointegration vector, we applied the dynamic ordinary least squares (DOLSs) model for individual countries and the dynamic panel ordinary least squares (PDOLSs) model for groups of countries. The results suggest that the entry of FDI into Latin American (LA) countries increases CO<sub>2</sub> emissions, affecting the environmental quality. These findings disagree with the environmental Kuznets curve (EKC) hypothesis but, in contrast, they are in line with the pollution haven hypothesis (PHH). Moreover, we show evidence in long-term equilibrium relationship between FDI input and CO<sub>2</sub> emissions, which is not the case for the short-term equilibrium. Some additional results suggest that FDI flows do not cause the CO<sub>2</sub> emissions in LA countries. The empirical findings suggest policymakers to design policies to “the second-best theory”, targeting FDI flows to their economies to solve economic problems in the short term, but thereafter they may guarantee the reduction in environmental pollution, based on environmentally responsible FDI and stronger regulations. In other words, the transition from a pollution haven to the applicability of the environmental Kuznets curve (EKC). This study contributes with scarce empirical evidence for LA countries in this issue.
format	article
author	Wilman-Santiago Ochoa-Moreno Byron Alejandro Quito Carlos Andrés Moreno-Hurtado
author_facet	Wilman-Santiago Ochoa-Moreno Byron Alejandro Quito Carlos Andrés Moreno-Hurtado
author_sort	Wilman-Santiago Ochoa-Moreno
title	Foreign Direct Investment and Environmental Quality: Revisiting the EKC in Latin American Countries
title_short	Foreign Direct Investment and Environmental Quality: Revisiting the EKC in Latin American Countries
title_full	Foreign Direct Investment and Environmental Quality: Revisiting the EKC in Latin American Countries
title_fullStr	Foreign Direct Investment and Environmental Quality: Revisiting the EKC in Latin American Countries
title_full_unstemmed	Foreign Direct Investment and Environmental Quality: Revisiting the EKC in Latin American Countries
title_sort	foreign direct investment and environmental quality: revisiting the ekc in latin american countries
publisher	MDPI AG
publishDate	2021
url	https://doaj.org/article/5f8980c3b31049abab07eb4a39d6cd6b
work_keys_str_mv	AT wilmansantiagoochoamoreno foreigndirectinvestmentandenvironmentalqualityrevisitingtheekcinlatinamericancountries AT byronalejandroquito foreigndirectinvestmentandenvironmentalqualityrevisitingtheekcinlatinamericancountries AT carlosandresmorenohurtado foreigndirectinvestmentandenvironmentalqualityrevisitingtheekcinlatinamericancountries
_version_	1718410342887849984

Foreign Direct Investment and Environmental Quality: Revisiting the EKC in Latin American Countries

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