How Do Foreign Direct Investment and Economic Growth Affect Environmental Degradation? Evidence from 47 Middle-Income Countries

This article estimates how economic growth and foreign direct investment affect environmental pollution. Our motivation is that less developed nations must make trade-off decisions between economic growth and environmental pollution. Thus, we employ the Autoregressive Distributed Lag Model (ARDL) to analyze a sample of 47 middle-income countries from 1991-2018. The ARDL is a suitable estimation method because it helps analyze the short-term and long-term impacts of economic growth and foreign direct investment on environmental degradation. Our result shows in the long term that a percentage increase in FDI inflows reduces CO2 emissions by 0.006% in the long-term period. A percentage increase in economic growth also decreases environmental pollution by 0.01%. Our findings support Porter's hypothesis, pollution halo hypothesis, and Environmental Kuznets Curve hypothesis. Finally, this study contributes practical implications for policymakers to sustain economic growth and reduce environmental pollution in middle-income nations.