FDI, Trade, and Finance: Catalysts for Green Growth in ASEAN-5
DOI:
https://doi.org/10.37134/jcit.vol14.1.7.2024Keywords:
FDI, Trade openness, Financial development, Green growthAbstract
Assuring economic growth and development without neglecting the requirement for environmental sustainability has become the most debatable topic in recent international forums. As a result, researchers and decision-makers are now focusing on green growth instead of traditional economic growth. Several factors that influence green growth have been studied in the literature to date, however, the impact of foreign direct investment, trade openness and financial development is relatively unexplored. Therefore, this study employs a fully modified ordinary least squares (FMOLS) estimator to investigate the impact of foreign direct investment, trade openness, and financial development on green economic growth for ASEAN-5 countries from 2010 to 2021. The empirical results show that foreign direct investment and financial development have a positive impact on green growth, whereas trade openness has a negative impact on green growth. Considering the results, this study recommends that policymakers to encourage environmentally responsible foreign investment to invest in the home nation and enhance financial market competitiveness through domestic and international liberalization and privatization in order to promote green growth. We also suggest that policymakers to strengthen and enforce environmental regulations to prevent environmental degradation brought on by increased trade to support green economic growth.
Downloads
References
Acheampong, A. O. (2019). Modelling for insight: does financial development improve environmental quality?. Energy Economics, 83, 156-179.
Alola, A. A., Bekun, F. V., & Sarkodie, S. A. (2019). Dynamic impact of trade policy, economic growth, fertility rate, renewable and non-renewable energy consumption on ecological footprint in Europe. Science of the Total Environment, 685, 702-709
Andersson, K., Baldi, F., Brynolf, S., Lindgren, J. F., Granhag, L., & Svensson, E. (2016). Shipping and the Environment (pp. 3-27). Springer Berlin Heidelberg.
Banerjee, K. (2022). FDI flow in Energy Sector among BCIM, BIMSTEC+ 1 and ASEAN+ 4 sub-regional alignments. Journal of Environmental Science and Economics, 1(3), 33-50.
Birdsall, N., & Wheeler, D. (1993). Trade policy and industrial pollution in Latin America: Where are the pollution havens?. The Journal of Environment & Development, 2(1), 137-149.
Bowen, A., & Hepburn, C. (2014). Green growth: An assessment. Oxford Review of Economic Policy, 30(3), 407-422.
Chen, Y. S., Zhang, & Wang, X. (2023). Promote or inhibit? The green effect of environmental regulation in China—Based on the perspective of FDI. Journal of Resources and Ecology, 14(5), 951-964.
Choong, C. K., Liew, V. K. S., Chan, S. G., & Ch’ng, H. K. (2011). Foreign direct investment volatility and economic growth in ASEAN-five countries. International Journal of Academic Research, 3(4), 221-224.
D’Alessandro, S., Cieplinski, A., Distefano, T., & Dittmer, K. (2020). Feasible alternatives to green growth. Nature Sustainability, 3(4), 329-335.
Efrat, A. (2016). Promoting trade through private law: Explaining international legal harmonization. The Review of International Organizations, 11, 311-336
Fauzel, S. (2017). The impact of FDI on CO2 emission in a small island developing state: A cointegration approach. Economics and Business Letters, 6(1), 6-13.
Haider, S., Malik, S. M., Nadeem, B., Sadiq, N., & Ghaffari, A. S. (2021). Impact of population growth on the natural resources of Cholistan desert. PalArch's Journal of Archaeology of Egypt/Egyptology, 18(10), 1778-1790.
Hao, L. N., Umar, M., Khan, Z., & Ali, W. (2021). Green growth and low carbon emission in G7 countries: How critical the network of environmental taxes, renewable energy and human capital is? Science of The Total Environment, 752, 141853.
Hémous, D. (2016). The dynamic impact of unilateral environmental policies. Journal of International Economics, 103, 80-95.
Hille, E., Shahbaz, M., & Moosa, I. (2019). The impact of FDI on regional air pollution in the Republic of Korea: A way ahead to achieve the green growth strategy?. Energy Economics, 81, 308-326.
Im, K. S., Pesaran, M. H., & Shin, Y. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115(1), 53-74.
Kao, C. (1999). Spurious regression and residual-based tests for cointegration in panel data. Journal of Econometrics, 90(1), 1-44.
Latif, Z., Latif, S., Ximei, L., Pathan, Z. H., Salam, S., & Jianqiu, Z. (2018). The dynamics of ICT, foreign direct investment, globalization and economic growth: Panel estimation robust to heterogeneity and cross-sectional dependence. Telematics and informatics, 35(2), 318-328
Leitao, N.C., Koengkan, M., & Fuinhas, J.A. (2022). The role of intra-industry trade, foreign direct investment, and renewable energy on portuguese carbon dioxide emissions. Sustainability, 14(22), 15131.
Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: Asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24.
Li, L., Jiang, H., Liu, M., & Wu, Q. (2023). Developing a model between trade openness and economic recovery: Panel data analysis for Chinese pilot-regions. Renewable Energy, 217, 119132.
Lyon, T. P., & Maxwell, J. W. (2019). “Voluntary” approaches to environmental regulation. In Economic Institutions and Environmental Policy (pp. 75-120). New York: Routledge.
Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and statistics, 61(S1), 631-652.
Malarvizhi, C. A. N., Zeynali, Y., Mamun, A. A., & Ahmad, G. B. (2019). Financial development and economic growth in ASEAN-5 countries. Global Business Review, 20(1), 57-71.
Mihci, H., Cagatay, S., & Koska, O. (2005). The impact of environmental stringency on the foreign direct investments of the OECD countries. Journal of Environmental Assessment Policy and Management, 7(04), 679-704.
Mukhtarov, S., Aliyev, S., Mikayilov, J. I., Ismayilov, A., & Rzayev, A. (2021). The FDI-CO2 nexus from the sustainable development perspective: The case of Azerbaijan. International Journal of Sustainable Development & World Ecology, 28(3), 246-254.
Ng, C. H., Mistoh, M. A., Teo, S. H., Galassi, A., Ibrahim, A., Sipaut, C. S., Foo, J., Seay, J., Taufiq‐Yap,Y. H. & Janaun, J. (2023). Plastic waste and microplastic issues in Southeast Asia. Frontiers in Environmental Science, 11, 427.
OECD. (2011). Towards green growth: Monitoring progress. Paris: OECD Publishing.
Omran, A., & Schwarz-Herion, O. (2020). Deforestation in Malaysia: The current practice and the way forward. Sustaining our Environment for Better Future: Challenges and Opportunities, 175-193.
Opuala, C. S., Omoke, P. C., & Uche, E. (2023). Sustainable environment in West Africa: The roles of financial development, energy consumption, trade openness, urbanization and natural resource depletion. International Journal of Environmental Science and Technology, 20(1), 423-436.
Ozturk, I., & Acaravci, A. (2013). The long-run and causal analysis of energy, growth, openness and financial development on carbon emissions in Turkey. Energy Economics, 36, 262–267.
Park, H., & Kim, J. D. (2020). Transition towards green banking: Role of financial regulators and financial institutions. Asian Journal of Sustainability and Social Responsibility, 5(1), 1-25.
Pedroni, P. (1999). Critical values for cointegration tests in heterogeneous panels with multiple regressors. Oxford Bulletin of Economics and statistics, 61(S1), 653-670.
Pedroni, P. (2000). Fully modified OLS for heterogeneous cointegrated panels. In Nonstationary panels, panel cointegration and dynamic panels. Advances in Econometrics, ed. B.H. Baltagi, T.B. Fomby, and R.C. Hill, pp. 93–130. Amsterdam: JAI Press.
Pedroni, P. (2004). Panel cointegration: Asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Econometric Theory, 20, 597–625.
Peng, N., & Zhang, X. (2022). The impact of environmental regulations on the location choice of newly built polluting firms: Based on the perspective of new economic geography. Environmental Science and Pollution Research, 29(39), 59802-59815.
Phillips, P. C., & Hansen, B. E. (1990). Statistical inference in instrumental variables regression with I (1) processes. The Review of Economic Studies, 57(1), 99-125.
Qamri, G. M., Sheng, B., Adeel-Farooq, R. M., & Alam, G. M. (2022). The criticality of FDI in environmental degradation through financial development and economic growth: Implications for promoting the green sector. Resources Policy, 78, 102765.
Rasoulinezhad, E., & Mostaghimi Ghomi, N. (2022). How can financial development affect sustainable economic development? Evidence from Asian countries with different income levels. Iranian Economic Review.
Ridzuan, A. R., Khalid, M. W., Zarin, N. I., Razak, M. I. M., Ridzuan, A. R., Ismail, I., & Norizan, N. (2018). The impact of foreign direct investment, domestic investment, trade openness and population on economic growth: Evidence from ASEAN-5 countries. International Journal of Academic Research in Business and Social Sciences, 8(1), 128-143.
Sadiq, M., Amayri, M. A., Paramaiah, C., Mai, N. H., Ngo, T. Q., & Phan, T. T. H. (2022). How green finance and financial development promote green economic growth: deployment of clean energy sources in South Asia. Environmental Science and Pollution Research, 29(43), 65521-65534.
Salahuddin, M., Alam, K., Ozturk, I., & Sohag, K. (2018). The effects of electricity consumption, economic growth, financial development and foreign direct investment on CO2 emissions in Kuwait. Renewable and sustainable energy reviews, 81, 2002-2010.
Shang, Y., Lian, Y., Chen, H., & Qian, F. (2023). The impacts of energy resource and tourism on green growth: Evidence from Asian economies. Resources Policy, 81, 103359.
Song, K., Kim, H., Cha, J., & Lee, T. (2021). Matching and mismatching of green jobs: A big data analysis of job recruiting and searching. Sustainability, 13(7), 4074.
Suki, N. M., Suki, N. M., Afshan, S., Sharif, A., Kasim, M. A., & Hanafi, S. R. M. (2022). How does green technology innovation affect green growth in ASEAN-6 countries? Evidence from advance panel estimations. Gondwana Research, 111, 165-173.
Tan, B. W., & Tang, C. F. (2016). Examining the causal linkages among domestic investment, FDI, trade, interest rate and economic growth in ASEAN-5 countries. International Journal of Economics and Financial Issues, 6(1), 214-220.
Tang, T., Shahzad, F., Ahmed, Z., Ahmad, M., & Abbas, S. (2022). Energy transition for meeting ecological goals: Do economic stability, technology, and government stability matter?. Frontiers in Environmental Science, 10, 955494.
Tawiah, V. K., Zakari, A., & Khan, I. (2021a). The environmental footprint of China-Africa engagement: An analysis of the effect of China–Africa partnership on carbon emissions. Science of the Total Environment, 756, 143603.
Tawiah, V., Zakari, A., & Adedoyin, F. F. (2021b). Determinants of green growth in developed and developing countries. Environmental Science and Pollution Research, 28, 39227-39242.
Vogiatzoglou, K., & Nguyen, P. N. T. (2016). Economic openness and economic growth: A cointegration analysis for ASEAN-5 countries. The European Journal of Applied Economics, 13(2), 10-20.
Wang, J., Chen, J., & Li, R. (2023). Outward foreign direct investment and urban green productivity: Promote or inhibit?. International Review of Economics & Finance, 88, 516-530.
Wellmann, T., Schug, F., Haase, D., Pflugmacher, D., & van der Linden, S. (2020). Green growth? On the relation between population density, land use and vegetation cover fractions in a city using a 30-years Landsat time series. Landscape and Urban Planning, 202, 103857.
Yang, L., Ma, X., & Zhao, Y. (2017). A condition-based maintenance model for a three-state system subject to degradation and environmental shocks. Computers & Industrial Engineering, 105, 210-222.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2024 UPSI Press
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
