Relationship between FDI and Environment: Evidence from Emerging Countries

Javed Bin Kamal, Abu N.M. Wahid and Khaled Bin Kamal
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Javed Bin Kamal: Ph.D. student, Economics, University of Newcastle, Australia
Abu N.M. Wahid: Professor, Economics and Finance, Tennessee State University, USA
Khaled Bin Kamal: Banker, Bangladesh

Bangladesh Development Studies, 2016, vol. 39, issue 3-4, 121-140

Abstract: This paper uses generalized method of moments (GMM) panel estimator, proposed by Arellano-Bond and Blundell-Bond, to examine the relationship between FDI and environment for the period of 2000-2010 for a sample of 16 emerging countries. The effect of financial development, institutional quality and macroeconomic policy related variables are controlled for from the macroeconomic literature. The OLS based regression results reveal that environmental quality is not significant in explaining FDI inflows in emerging countries. However, based on dynamic panel data analysis, environmental quality is significant in explaining FDI. Using a number of controls it is found that stock market capitalisation to GDP, gross saving to GDP, gross capital stock to GDP, market size , and economic freedom (institutional quality) exercised by the host countries are important determinants in FDI inflows. However, the influence of such determinants is mixed in direction and magnitude at different significance levels. Thus, climate change and its mitigation strategy and overall environment policy have important implications for attracting FDI in the countries in question. In addition, the results highlight the role of institutional quality and financial development in attracting FDI.

Keywords: FDI; Environment; Dynamic Panel Data Model (search for similar items in EconPapers)
JEL-codes: C01 F40 F62 G34 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:ris:badest:0803

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