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Foreign direct investment, foreign trade and environment: New evidence from simultaneous-equation system of gravity models

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  • Kahouli, Bassem
  • Omri, Anis

Abstract

Since the early 90s, after the implementation of various regulatory multinational agreements, debates about the impacts of environmental quality on international trade and Foreign Direct Investment (FDI) have been increased considerably. This article tackles this issue for 14 home countries and 39 host countries for 6 Regional Trade Agreements (RTAs) over the period 1990–2011 by using gravity models. We also used simultaneous-equation system of gravity models in order to investigate the two-way linkages between trade and FDI in the presence of environmental degradation. Our main findings suggest that the impact of the environmental degradation on trade is negative and significant only for the static estimation. However, the impact of the environmental degradation on FDI is negative and insignificant for both static and dynamic estimations. The results also show that there exists a unidirectional causal relationship running from trade to FDI.

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  • Kahouli, Bassem & Omri, Anis, 2017. "Foreign direct investment, foreign trade and environment: New evidence from simultaneous-equation system of gravity models," Research in International Business and Finance, Elsevier, vol. 42(C), pages 353-364.
    • Handle: RePEc:eee:riibaf:v:42:y:2017:i:c:p:353-364
    DOI: 10.1016/j.ribaf.2017.07.161
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    16. Shahbaz, Muhammad & Balsalobre-Lorente, Daniel & Sinha, Avik, 2019. "Foreign Direct Investment–CO2 Emissions Nexus in Middle East and North African countries: Importance of Biomass Energy Consumption," MPRA Paper 91729, University Library of Munich, Germany, revised 19 Jan 2019.
    17. Sung, Bongsuk & Song, Woo-Yong & Park, Sang-Do, 2018. "How foreign direct investment affects CO2 emission levels in the Chinese manufacturing industry: Evidence from panel data," Economic Systems, Elsevier, vol. 42(2), pages 320-331.
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    More about this item

    Keywords

    FDI; Trade; Gravity equations; Simultaneous-equation system;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F18 - International Economics - - Trade - - - Trade and Environment
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation

    Statistics

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