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Foreign direct investment, income, and environmental pollution in developing countries: Panel data analysis of Latin America

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  • Sapkota, Pratikshya
  • Bastola, Umesh

Abstract

Effects of foreign direct investment (FDI) and income on pollution emissions are examined using time series data from 1980 to 2010 for 14 Latin American countries. Specifically, we test the validity of Pollution Haven Hypothesis (PHH) and Environmental Kuznets Curve (EKC) hypothesis for this region. Results from panel fixed and random effects models that controlled the effects of physical capital, energy, human capital, population density, and unemployment rate indicate the validity of both the PHH and EKC hypothesis. Estimating two separate models for high and low-income countries does not alter the findings for the PHH, however, the impacts of human capital on pollution emission are found to be different for the two groups of countries. Policies that focus on attracting clean and energy efficient industries through FDI have potential to improve environmental health while enhancing economic growth in Latin America.

Suggested Citation

  • Sapkota, Pratikshya & Bastola, Umesh, 2017. "Foreign direct investment, income, and environmental pollution in developing countries: Panel data analysis of Latin America," Energy Economics, Elsevier, vol. 64(C), pages 206-212.
    • Handle: RePEc:eee:eneeco:v:64:y:2017:i:c:p:206-212
    DOI: 10.1016/j.eneco.2017.04.001
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    More about this item

    Keywords

    Pollution haven hypothesis; Latin America; Environmental Kuznets curve hypothesis; Fixed and random effects; Endogeneity;
    All these keywords.

    JEL classification:

    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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    1. Foreign direct investment, income, and environmental pollution in developing countries: Panel data analysis of Latin America (Energy Economics 2017) in ReplicationWiki

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