The Environmental Effects of FDI

Abstract

Empirical work on the environmental effects of FDI has produced a mixed bag of results, with hardly any evidence for Middle East and North Africa (MENA) countries. A theoretical model is presented, postulating that whether FDI has a positive or negative effect on the environment depends on the position of the underlying country or region on the environmental Kuznets curve (EKC). The empirical results indicate that FDI leads to environmental degradation in MENA countries and that they fall on the rising sector of the EKC. The theoretical model is supported by the empirical results.