The Negative Effects of Carbon Emission on FDI

Abstract

This study aims to understand the negative impacts of carbon emission on the foreign direct investments. For this purpose, a comparative analysis is performed for both E7 and G7 countries. In the analysis process, Pedroni panel cointegration (PPC), Kao panel cointegration (KPC), and Dumitrescu Hurlin panel causality (DHPC) analyses are taken into consideration. The findings indicate that carbon emission has a negative influence on foreign direct investments for both country groups. Nonetheless, this relationship is stronger for G7 economies. It is also identified that there is no causality relationship between these variables. It is recommended that the countries should generate appropriate policies to minimize carbon emission problem. Within this context, new tax can be implemented for the companies that lead to high carbon emission. Additionally, governments can give incentives to the projects that aim to decrease carbon emission. In this scope, decreasing tax ratio and providing a technical support can be given as examples.