The impact of foreign direct investment on CO2 emissions in Turkey: new evidence from cointegration and bootstrap causality analysis

Abstract

Pollution haven hypothesis (PHH), which is defined as foreign direct investment inducing a raising impact on the pollution level in the hosting country, is lately a subject of discussion in the field of economics. This study, within the scope of related discussion, aims to look into the potential impact of foreign direct investments on CO2 emission in Turkey in 1974-2013 period using environmental Kuznets curve (EKC) model. For this purpose, Maki (Econ Model 29(5):2011-2015, 2012) structural break cointegration test, Stock and Watson (Econometrica 61:783-820, 1993) dynamic ordinary least square estimator (DOLS), and Hacker and Hatemi-J (J Econ Stud 39(2):144-160, 2012) bootstrap test for causality method are used. Research results indicate the existence of a long-term balance relationship between FDI, economic growth, energy usage, and CO2 emission. As per this relationship, in Turkey, (1) the potential impact of FDI on CO2 emission is positive. This result shows that PHH is valid in Turkey. (2) Moreover, this is not a one-way relationship; the changes in CO2 emission also affect FDI entries. (3) The results also provide evidence for the existence of the EKC hypothesis in Turkey. Within the frame of related findings, the study concludes several polities and presents various suggestions.