Effect of Foreign Direct Investment, on Environmental Quality: A Case Study of Developing Economies

Abstract

This study investigates the relationships between foreign direct investment (FDI), financial development (FD), renewable energy (RE), human capital (HC), and environmental quality proxied by CO₂ emissions, in developing economies.  Using panel quantile regression, the results show that FDI significantly impactsCO₂ emissions, supporting the pollution haven theory. FD measured by bank credit to the private sector, is also positively linked with CO₂ emissions. However, with a potential reversal when credit is channeled toward green initiatives. RE has a significantly negative impact on CO₂ emissions. HC significantly impactsCO₂ emissions because it is driven by increased economic activity, industrialization, and urbanization. These findings provide insights into the complex relationships between economic growth and environmental degradation. These findings highlight the need for policymakers to consider the environmental implications of FDI, FD, and HC, and to promote RE and green financing initiatives to mitigate CO₂ emissions.