Pollution haven or pollution halo in the context of emerging economies: a two-step system GMM approach

The study examines the presence of the pollution haven or halo hypothesis by investigating the impact of foreign direct investment (FDI) inflow on environmental degradation in 46 emerging countries from 2010 to 2020 using the robust two-step System generalised method of moments (GMM) approach. The study considers three important proxies to capture environmental degradation: ecological footprint (EF), consumption-based carbon emission (CBCE), and production-based carbon emission (PBCE). Further, economic growth, import, renewable energy consumption, and industrialisation were the control variables. The analysis demonstrated that FDI coming to the studied emerging countries improves the environmental qualities by reducing all three proxies of environmental degradation, which validates the presence of the pollution halo hypothesis. Further results show that a 1% increase in economic growth, import, and industrialisation are raising the EF by 0.289%, 0.166%, and 0.063%, respectively. However, a 1% increase in renewable energy consumption reduces the EF by 0.059%. Furthermore, economic growth and renewable energy consumption are helping to reduce CBCE, but imports are raising it. Thus, the study's findings suggest that emerging countries can attain sustainable development and enhance their environmental qualities by attracting FDI inflows that enable the transfer of advanced and eco-friendly technologies, transitioning from conventional energy sources to modern renewable energy alternatives, prioritising green growth strategies, and adopting conservation management practices.