Linking international trade and foreign direct investment to CO2 emissions: Any differences between developed and developing countries?

Obed Kwame Essandoh; Moinul Islam; Makoto Kakinaka

doi:10.1016/j.scitotenv.2019.136437

Linking international trade and foreign direct investment to CO₂ emissions: Any differences between developed and developing countries?

Sci Total Environ. 2020 Apr 10:712:136437. doi: 10.1016/j.scitotenv.2019.136437. Epub 2020 Jan 7.

Authors

Obed Kwame Essandoh¹, Moinul Islam², Makoto Kakinaka³

Affiliations

¹ Graduate School for International Development and Cooperation, Hiroshima University, 1-5-1 Kagamiyama, Higashi-Hiroshima, Hiroshima 739-8529, Japan; Ghana Grid Company LTD., P.O. Box CS7979, Tema, Ghana.
² Graduate School for International Development and Cooperation, Hiroshima University, 1-5-1 Kagamiyama, Higashi-Hiroshima, Hiroshima 739-8529, Japan; Urban Institute, Kyushu University, 744 Motooka, Nishi-ku, Fukuoka 819-0395, Japan. Electronic address: moinul@hiroshima-u.ac.jp.
³ Graduate School for International Development and Cooperation, Hiroshima University, 1-5-1 Kagamiyama, Higashi-Hiroshima, Hiroshima 739-8529, Japan; Network for Education and Research on Peace and Sustainability (NERPS), Hiroshima University, 1-3-1 Kagamiyama, Higashi-Hiroshima, Hiroshima 739-8530, Japan.

PMID: 31931208
DOI: 10.1016/j.scitotenv.2019.136437

Abstract

International trade, together with foreign direct investment (FDI), promotes economic integration with complex global supply value chains, which is now recognized as a crucial factor in determining CO₂ emissions. Production reallocation across countries, often associated with FDI, promotes cross-border trade of emission-embodied products. By applying panel pooled mean group-autoregressive distributive lag (PMG-ARDL) models, this study discusses the long-run relevance among CO₂ emissions, international trade, and FDI inflows with the consideration of the short-run dynamics over 52 countries during the period from 1991 to 2014. Focusing on possible differences between developed and the developing countries, this study reveals that CO₂ emissions have a negative long-run relationship with trade exclusively for developed countries, while they have a positive long-run relationship with FDI inflows solely for developing countries. The recent trend of increased trade and FDI would promote the transfer of high emission-intensive production units from developed countries to developing countries, causing developed countries to achieve emission reduction at the expense of developing countries.

Keywords: CO(2) emissions; Energy consumption; Foreign direct investment; International trade; PMG-ARDL model; Trade openness.