The Relationship Between Foreign Direct Investment, Economic Growth, Energy Consumption and Co2 Emissions: Evidence from ARDL Model with a Structural Break for Turkey

This paper investigates the impact of foreign direct investments, energy consumption and economic growth on CO2 emissions in Turkey for the period of 1974-2015 by using autoregressive distributed lag (ARDL) model with a structural break. The robustness of the model is tested by using FMOLS, DOLS and CCR estimators. The findings reveal a long-run relationship between the variables, and show that FDI contributes positively to CO2 emissions, validating pollution haven hypothesis. Economic growth (measured by GDP) has a significantly positive relationship with CO2 emissions whereas impact of its squared on CO2 emissions is also significant but negative which confirms Environmental Kuznets Curve (EKC) hypothesis. Energy consumption is also positively associated with CO2 emissions, implying that larger levels of energy consumption lead to a higher environmental degradation. The dummy variable including the structural break is similarly statistically significant and positive. It is concluded that because of FDI inflows engender an increase in carbon emissions, Turkey should adopt cleaner technologies to avoid environmental pollution.