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Globalization and the Environmental Impact of Sectoral FDI

Author

Listed:
  • Nadia Doytch

    (Brooklyn College and Graduate Center, CUNY)

  • Merih Uctum

    (Brooklyn College and Graduate Center, CUNY)

Abstract

We analyze the environmental impact of capital inflows and investigate the halo effect (FDI improves the environment). We control for the type of FDI inflows, the EKC (Environmental Kuznets Curve) effect and country income level, and find (i) a differential industry effect: while total foreign investment in aggregate has a negative effect on all countries, this can be traced in particular to capital flows to manufacturing and nonfinancial services sectors.; (ii) an income inequality effect: foreign investment flowing into poorer countries has harmful effects on environment consistent with the race-to-the bottom argument, while capital flowing to richer countries has a beneficial effect and supports the halo effect; (iii) the EKC effect depends on the sector absorbing the FDI and again income level of the country. We show that studies relying only on firm level or aggregate data, miss the sectoral spillovers, and thus may lead to misleading conclusions.

Suggested Citation

  • Nadia Doytch & Merih Uctum, 2016. "Globalization and the Environmental Impact of Sectoral FDI," Working Papers 12, City University of New York Graduate Center, Ph.D. Program in Economics.
    • Handle: RePEc:cgc:wpaper:012
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    More about this item

    Keywords

    Sectoral FDI; environmental spillovers; dynamic panel;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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