Economic growth and environmental sustainability in developing economies

• Published in: Research in international business and finance 2024-06, Vol.70, p.102341, Article 102341
• Main Authors: Hunjra, Ahmed Imran, Bouri, Elie, Azam, Muhammad, Azam, Rauf I, Dai, Jiapeng
• Format: Article
• Language: English
• Subjects: CO2 emissions; developing countries; Economic growth; environmental sustainability; foreign direct investment (FDI)
• ISSN: 0275-5319; 1878-3384
• DOI: 10.1016/j.ribaf.2024.102341

This study examines the impact of economic growth and foreign direct investment (FDI) on environmental degradation in 76 developing economies between 1991 and 2022, using various panel data models. Firstly, the environmental Kuznets curve hypothesis is supported, indicating that, as the economy expands, cleaner technologies and practices are adopted, resulting in lower carbon emissions. Secondly, FDI and carbon emissions are positively related, suggesting that investment type and regulatory frameworks must be considered carefully. This analysis underlines the impact of abundant natural resources on emissions and stresses the significance of diversification strategies and the transition to cleaner technologies. Thirdly, further analysis involving interaction effects indicates that environmental degradation increases when high economic growth, abundant resources, and substantial FDI occur simultaneously. These findings highlight the importance of devising context-specific strategies and policies to balance economic growth and environmental sustainability in developing economies. [Display omitted] •Study the impact of economic growth and FDI on environmental degradation.•Employ panel data from 76 developing economies between 1991 and 2022.•Use 2SLS regression, cross-sectional FGLS regression, and fixed-effects models.•The positive effect of FDI on carbon emissions is significant.•Environmental degradation increases when high economic growth, abundant resources, and substantial FDI occur simultaneously.