One important and frequently-raised issue about foreign direct investment (FDI) is the potentially negative consequences for the environment. The potential environmental cost due to increased emissions may undermine the economic gains associated with increases in FDI inflow. Although the literature is dominated with this adverse view of FDI on the environment, there is also a possibility that FDI can contribute to a cleaner environment, especially, if FDI comes with green technologies and this creates spillovers for domestic industries. Theoretically, the effect of FDI on the environment can be negative or positive. To deal with the theoretical ambiguity about the FDI environment nexus, many empirical studies have been conducted but their results only reinforce the controversy as they produce contrasting results. We conduct a meta-analysis of the effect of FDI on environmental emissions using 65 primary studies that produce 1006 elasticities. Our results show that the underlying effect of FDI on environmental emissions is close to zero, however, after accounting for heterogeneity in the studies, we find that FDI significantly reduces environmental emissions. Results remain robust after disaggregating the effect for countries at different levels of development as well as for different pollutants.

Additional Metadata
Keywords FDI, pollution haven hypothesis, pollution halo hypothesis, environment, emissions, meta-analysis
JEL International Investment; Long-Term Capital Movements (jel F21), Economic Impacts of Globalization, General (jel F60), Environment and Development; Environment and Trade; Sustainability; Environmental Accounting; Environmental Equity; Population Growth (jel Q56)
Publisher International Institute of Social Studies of Erasmus University (ISS)
Persistent URL hdl.handle.net/1765/121765
Series ISS Working Papers - General Series
Journal ISS Working Paper Series / General Series
Citation
Demena, B.A, & Afesorgbor, S.K. (2019). The effect of FDI on environmental emissions : Evidence from a meta-analysis (No. 650). ISS Working Paper Series / General Series (Vol. 650, pp. 1–41). International Institute of Social Studies of Erasmus University (ISS). Retrieved from http://hdl.handle.net/1765/121765