FDI-ENVIRONMENTAL QUALITY NEXUS: SOUTHEAST ASIAN TIGER CUB ECONOMIES

Abstract

Foreign Direct Investment (FDI) is a crucial catalyst for economic growth in countries, especially in the Southeast Asian Tiger Cub economies, including Indonesia, Malaysia, the Philippines, Thailand, and Vietnam. Nonetheless, the impact of foreign direct investment on environmental quality may differ by region. This study aims to investigate the impact of the FDI on carbon dioxide emission among Tiger Cub economies. Panel Autoregressive Distributed Lag (ARDL) and quadratic estimation methods are adopted in the study to estimate the relationship between FDI and carbon dioxide emission from 1995 to 2022, in view of linearity and non-linearity aspects. Empirical findings indicate that there is a negative relationship between FDI and carbon dioxide emission in the long run under the linearity model and supported the Pollution Halo Hypothesis (PHH). Furthermore, the nonlinearity results show that existence on inverted U-Shaped relationship between FDI and carbon dioxide emission. There is a positive impact of FDI on carbon dioxide emission when FDI is below the threshold level, while there is a negative impact of FDI on carbon dioxide emission when FDI is above the threshold level. The government should encourage green investment by offering business incentives or carbon credits, with a focus on high-value sectors such as advanced manufacturing, technology, renewable energy and research and development, as well as promoting technology transfer and innovation to attract foreign direct investment and stimulate economic growth, all while reducing environmental degradation.