Dynamic causality testing for EKC hypothesis, pollution haven hypothesis and international trade in India

This study examines the causality relationships between foreign direct investment (FDI), economic growth (GDP) and CO2 emissions along with the level of trade (exports and imports) taking place in India. The study uses data obtained from World Development Indicators (WDI) of World Bank Group for the period 1982-2013. The study employed the dynamic multivariate Toda-Yamamoto (TY) approach that uses the modified Wald (MWALD) test. Among the major findings of the study are: the existence of both Pollution Haven Hypothesis and Environmental Kuznets Curve (EKC) hypothesis in India. The other findings of the study are: FDI is causing exports; exports are causing imports; imports are causing CO2 emissions; and finally CO2 emissions and GDP are causing each other. This finding concludes mainly two things. First, India imports more of pollution-intensive manufactured goods. Second, FDI is causing GDP in India but through CO2 emissions.