IDEAS home Printed from https://ideas.repec.org/a/eee/rensus/v52y2015icp347-356.html
   My bibliography  Save this article

The impact of foreign direct investment on environmental quality: A bounds testing and causality analysis for Turkey

Author

Listed:
  • Seker, Fahri
  • Ertugrul, Hasan Murat
  • Cetin, Murat

Abstract

This study aims to investigate the impact of foreign direct investment (FDI), together with gross domestic product (GDP), the square of GDP, and energy consumption, on carbon dioxide (CO2) emissions in Turkey over the period 1974–2010. We employ both the bounds test approach which has superior properties especially in small samples and the Hatemi-J test which takes structural breaks into consideration in the co-integration analysis. Due to the co-integration relationship between CO2 emissions and other variables, the autoregressive distributed lag (ARDL) model is used in order to investigate short and long run elasticity between the variables. The long-run coefficients of the ARDL model indicate that the effect of FDI on CO2 emissions is positive but relatively small, while the effects of the GDP and energy consumption on CO2 emissions are quite considerable. Moreover, the short-run coefficients obtained by the error correction model (ECM) are found to be similar to those of the long-run model. The findings support the validity of the environmental Kuznets curve (EKC) hypothesis in both time-horizons. The vector ECM based Granger causality test is also applied to investigate the causal link. The causality test results indicate the existence of a causality running from all explanatory variables to CO2 emissions in the long run. Overall, the findings suggest that Turkey should promote energy efficiency with sustainable growth, and encourage more FDI inflows particularly in technology-intensive and environment-friendly industries to improve environmental quality.

Suggested Citation

  • Seker, Fahri & Ertugrul, Hasan Murat & Cetin, Murat, 2015. "The impact of foreign direct investment on environmental quality: A bounds testing and causality analysis for Turkey," Renewable and Sustainable Energy Reviews, Elsevier, vol. 52(C), pages 347-356.
  • Handle: RePEc:eee:rensus:v:52:y:2015:i:c:p:347-356
    DOI: 10.1016/j.rser.2015.07.118
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1364032115007650
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Jalil, Abdul & Feridun, Mete, 2011. "The impact of growth, energy and financial development on the environment in China: A cointegration analysis," Energy Economics, Elsevier, vol. 33(2), pages 284-291, March.
    2. Pao, Hsiao-Tien & Yu, Hsiao-Cheng & Yang, Yeou-Herng, 2011. "Modeling the CO2 emissions, energy use, and economic growth in Russia," Energy, Elsevier, vol. 36(8), pages 5094-5100.
    3. Halicioglu, Ferda, 2009. "An econometric study of CO2 emissions, energy consumption, income and foreign trade in Turkey," Energy Policy, Elsevier, vol. 37(3), pages 1156-1164, March.
    4. Robalino-López, Andrés & Mena-Nieto, Ángel & García-Ramos, José-Enrique & Golpe, Antonio A., 2015. "Studying the relationship between economic growth, CO2 emissions, and the environmental Kuznets curve in Venezuela (1980–2025)," Renewable and Sustainable Energy Reviews, Elsevier, vol. 41(C), pages 602-614.
    5. Grossman, G.M & Krueger, A.B., 1991. "Environmental Impacts of a North American Free Trade Agreement," Papers 158, Princeton, Woodrow Wilson School - Public and International Affairs.
    6. Matthew A. Cole & Robert J.R. Elliott & Jing Zhang, 2011. "Growth, Foreign Direct Investment, And The Environment: Evidence From Chinese Cities," Journal of Regional Science, Wiley Blackwell, vol. 51(1), pages 121-138, February.
    7. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    8. Farhani, Sahbi & Mrizak, Sana & Chaibi, Anissa & Rault, Christophe, 2014. "The environmental Kuznets curve and sustainability: A panel data analysis," Energy Policy, Elsevier, vol. 71(C), pages 189-198.
    9. Saboori, Behnaz & Sulaiman, Jamalludin, 2013. "Environmental degradation, economic growth and energy consumption: Evidence of the environmental Kuznets curve in Malaysia," Energy Policy, Elsevier, vol. 60(C), pages 892-905.
    10. Cowan, Wendy N. & Chang, Tsangyao & Inglesi-Lotz, Roula & Gupta, Rangan, 2014. "The nexus of electricity consumption, economic growth and CO2 emissions in the BRICS countries," Energy Policy, Elsevier, vol. 66(C), pages 359-368.
    11. Tiwari, Aviral Kumar & Shahbaz, Muhammad & Adnan Hye, Qazi Muhammad, 2013. "The environmental Kuznets curve and the role of coal consumption in India: Cointegration and causality analysis in an open economy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 18(C), pages 519-527.
    12. James Laurenceson & Joseph C.H. Chai, 2003. "Financial Reform and Economic Development in China," Books, Edward Elgar Publishing, number 2714.
    13. Mozumder, Pallab & Marathe, Achla, 2007. "Causality relationship between electricity consumption and GDP in Bangladesh," Energy Policy, Elsevier, vol. 35(1), pages 395-402, January.
    14. Acaravci, Ali & Ozturk, Ilhan, 2010. "On the relationship between energy consumption, CO2 emissions and economic growth in Europe," Energy, Elsevier, vol. 35(12), pages 5412-5420.
    15. Ang, James B., 2007. "CO2 emissions, energy consumption, and output in France," Energy Policy, Elsevier, vol. 35(10), pages 4772-4778, October.
    16. Ozturk, Ilhan & Acaravci, Ali, 2010. "CO2 emissions, energy consumption and economic growth in Turkey," Renewable and Sustainable Energy Reviews, Elsevier, vol. 14(9), pages 3220-3225, December.
    17. Engle, Robert & Granger, Clive, 2015. "Co-integration and error correction: Representation, estimation, and testing," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 39(3), pages 106-135.
    18. Lean, Hooi Hooi & Smyth, Russell, 2010. "CO2 emissions, electricity consumption and output in ASEAN," Applied Energy, Elsevier, vol. 87(6), pages 1858-1864, June.
    19. Wang, Danny T. & Gu, Flora F. & Tse, David K. & Yim, Chi Kin (Bennett), 2013. "When does FDI matter? The roles of local institutions and ethnic origins of FDI," International Business Review, Elsevier, vol. 22(2), pages 450-465.
    20. Omri, Anis & Nguyen, Duc Khuong & Rault, Christophe, 2014. "Causal interactions between CO2 emissions, FDI, and economic growth: Evidence from dynamic simultaneous-equation models," Economic Modelling, Elsevier, vol. 42(C), pages 382-389.
    21. Al-Mulali, Usama & Saboori, Behnaz & Ozturk, Ilhan, 2015. "Investigating the environmental Kuznets curve hypothesis in Vietnam," Energy Policy, Elsevier, vol. 76(C), pages 123-131.
    22. Lise, Wietze, 2006. "Decomposition of CO2 emissions over 1980-2003 in Turkey," Energy Policy, Elsevier, vol. 34(14), pages 1841-1852, September.
    23. repec:ipg:wpaper:2014-542 is not listed on IDEAS
    24. Narayan, Paresh Kumar & Narayan, Seema, 2010. "Carbon dioxide emissions and economic growth: Panel data evidence from developing countries," Energy Policy, Elsevier, vol. 38(1), pages 661-666, January.
    25. Lean, Hooi Hooi & Smyth, Russell, 2010. "Multivariate Granger causality between electricity generation, exports, prices and GDP in Malaysia," Energy, Elsevier, vol. 35(9), pages 3640-3648.
    26. Shahbaz, Muhammad & Khraief, Naceur & Uddin, Gazi Salah & Ozturk, Ilhan, 2014. "Environmental Kuznets curve in an open economy: A bounds testing and causality analysis for Tunisia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 34(C), pages 325-336.
    27. Katircioğlu, Salih Turan, 2014. "Testing the tourism-induced EKC hypothesis: The case of Singapore," Economic Modelling, Elsevier, vol. 41(C), pages 383-391.
    28. Roger Perman & David I. Stern, 2003. "Evidence from panel unit root and cointegration tests that the Environmental Kuznets Curve does not exist," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(3), pages 325-347, September.
    29. Jayanthakumaran, Kankesu & Verma, Reetu & Liu, Ying, 2012. "CO2 emissions, energy consumption, trade and income: A comparative analysis of China and India," Energy Policy, Elsevier, vol. 42(C), pages 450-460.
    30. Baek, Jungho, 2015. "A panel cointegration analysis of CO2 emissions, nuclear energy and income in major nuclear generating countries," Applied Energy, Elsevier, vol. 145(C), pages 133-138.
    31. Shafik, Nemat & Bandyopadhyay, Sushenjit, 1992. "Economic growth and environmental quality : time series and cross-country evidence," Policy Research Working Paper Series 904, The World Bank.
    32. Paresh Kumar Narayan & Seema Narayan, 2004. "The J-Curve: Evidence from Fiji," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(3), pages 369-380.
    33. Mahdi Ziaei, Sayyed, 2015. "Effects of financial development indicators on energy consumption and CO2 emission of European, East Asian and Oceania countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 42(C), pages 752-759.
    34. Zhang, Yue-Jun, 2011. "The impact of financial development on carbon emissions: An empirical analysis in China," Energy Policy, Elsevier, vol. 39(4), pages 2197-2203, April.
    35. Pao, Hsiao-Tien & Tsai, Chung-Ming, 2010. "CO2 emissions, energy consumption and economic growth in BRIC countries," Energy Policy, Elsevier, vol. 38(12), pages 7850-7860, December.
    36. Yin, Jianhua & Zheng, Mingzheng & Chen, Jian, 2015. "The effects of environmental regulation and technical progress on CO2 Kuznets curve: An evidence from China," Energy Policy, Elsevier, vol. 77(C), pages 97-108.
    37. Stern, David I. & Common, Michael S., 2001. "Is There an Environmental Kuznets Curve for Sulfur?," Journal of Environmental Economics and Management, Elsevier, vol. 41(2), pages 162-178, March.
    38. Stern, David I., 2004. "The Rise and Fall of the Environmental Kuznets Curve," World Development, Elsevier, vol. 32(8), pages 1419-1439, August.
    39. James E. Payne, 2010. "Survey of the international evidence on the causal relationship between energy consumption and growth," Journal of Economic Studies, Emerald Group Publishing, vol. 37(1), pages 53-95, January.
    40. Cole, M.A. & Rayner, A.J. & Bates, J.M., 1997. "The environmental Kuznets curve: an empirical analysis," Environment and Development Economics, Cambridge University Press, vol. 2(04), pages 401-416, November.
    41. Menegaki, Angeliki N., 2014. "On energy consumption and GDP studies; A meta-analysis of the last two decades," Renewable and Sustainable Energy Reviews, Elsevier, vol. 29(C), pages 31-36.
    42. Yang, Haisheng & He, Jie & Chen, Shaoling, 2015. "The fragility of the Environmental Kuznets Curve: Revisiting the hypothesis with Chinese data via an “Extreme Bound Analysis”," Ecological Economics, Elsevier, vol. 109(C), pages 41-58.
    43. Tang, Chor Foon & Tan, Bee Wah, 2015. "The impact of energy consumption, income and foreign direct investment on carbon dioxide emissions in Vietnam," Energy, Elsevier, vol. 79(C), pages 447-454.
    44. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
    45. Liddle, Brantley, 2015. "What Are the Carbon Emissions Elasticities for Income and Population? Bridging STIRPAT and EKC via robust heterogeneous panel estimates," MPRA Paper 61304, University Library of Munich, Germany.
    46. Ozturk, Ilhan & Acaravci, Ali, 2013. "The long-run and causal analysis of energy, growth, openness and financial development on carbon emissions in Turkey," Energy Economics, Elsevier, vol. 36(C), pages 262-267.
    47. Shahbaz, Muhammad & Mutascu, Mihai & Azim, Parvez, 2013. "Environmental Kuznets curve in Romania and the role of energy consumption," Renewable and Sustainable Energy Reviews, Elsevier, vol. 18(C), pages 165-173.
    48. V. N. Balasubramanyam & M. Salisu & David Sapsford, 1999. "Foreign direct investment as an engine of growth," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 8(1), pages 27-40.
    49. Abdulnasser Hatemi-J, 2008. "Tests for cointegration with two unknown regime shifts with an application to financial market integration," Empirical Economics, Springer, vol. 35(3), pages 497-505, November.
    50. Al-mulali, Usama & Foon Tang, Chor, 2013. "Investigating the validity of pollution haven hypothesis in the gulf cooperation council (GCC) countries," Energy Policy, Elsevier, vol. 60(C), pages 813-819.
    51. Azlina, A.A. & Law, Siong Hook & Nik Mustapha, Nik Hashim, 2014. "Dynamic linkages among transport energy consumption, income and CO2 emission in Malaysia," Energy Policy, Elsevier, vol. 73(C), pages 598-606.
    52. Baek, Jungho & Kim, Hyun Seok, 2013. "Is economic growth good or bad for the environment? Empirical evidence from Korea," Energy Economics, Elsevier, vol. 36(C), pages 744-749.
    53. Tamazian, Artur & Chousa, Juan Piñeiro & Vadlamannati, Krishna Chaitanya, 2009. "Does higher economic and financial development lead to environmental degradation: Evidence from BRIC countries," Energy Policy, Elsevier, vol. 37(1), pages 246-253, January.
    54. Ren, Shenggang & Yuan, Baolong & Ma, Xie & Chen, Xiaohong, 2014. "International trade, FDI (foreign direct investment) and embodied CO2 emissions: A case study of Chinas industrial sectors," China Economic Review, Elsevier, vol. 28(C), pages 123-134.
    55. Katircioglu, Salih Turan & Feridun, Mete & Kilinc, Ceyhun, 2014. "Estimating tourism-induced energy consumption and CO2 emissions: The case of Cyprus," Renewable and Sustainable Energy Reviews, Elsevier, vol. 29(C), pages 634-640.
    56. Shahbaz, Muhammad & Ozturk, Ilhan & Afza, Talat & Ali, Amjad, 2013. "Revisiting the environmental Kuznets curve in a global economy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 25(C), pages 494-502.
    57. Lee, Jung Wan, 2013. "The contribution of foreign direct investment to clean energy use, carbon emissions and economic growth," Energy Policy, Elsevier, vol. 55(C), pages 483-489.
    58. Nasir, Muhammad & Ur Rehman, Faiz, 2011. "Environmental Kuznets Curve for carbon emissions in Pakistan: An empirical investigation," Energy Policy, Elsevier, vol. 39(3), pages 1857-1864, March.
    59. Magnus Blomstrom & Robert E. Lipsey & Mario Zejan, 1992. "What Explains Developing Country Growth?," NBER Working Papers 4132, National Bureau of Economic Research, Inc.
    60. Kasman, Adnan & Duman, Yavuz Selman, 2015. "CO2 emissions, economic growth, energy consumption, trade and urbanization in new EU member and candidate countries: A panel data analysis," Economic Modelling, Elsevier, vol. 44(C), pages 97-103.
    61. Salahuddin, Mohammad & Gow, Jeff, 2014. "Economic growth, energy consumption and CO2 emissions in Gulf Cooperation Council countries," Energy, Elsevier, vol. 73(C), pages 44-58.
    62. Jalil, Abdul & Mahmud, Syed F., 2009. "Environment Kuznets curve for CO2 emissions: A cointegration analysis for China," Energy Policy, Elsevier, vol. 37(12), pages 5167-5172, December.
    63. Chandran, V.G.R. & Tang, Chor Foon, 2013. "The impacts of transport energy consumption, foreign direct investment and income on CO2 emissions in ASEAN-5 economies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 24(C), pages 445-453.
    64. Chew Ging Lee, 2009. "Foreign direct investment, pollution and economic growth: evidence from Malaysia," Applied Economics, Taylor & Francis Journals, vol. 41(13), pages 1709-1716.
    65. Dinda, Soumyananda, 2004. "Environmental Kuznets Curve Hypothesis: A Survey," Ecological Economics, Elsevier, vol. 49(4), pages 431-455, August.
    66. Soytas, Ugur & Sari, Ramazan & Ewing, Bradley T., 2007. "Energy consumption, income, and carbon emissions in the United States," Ecological Economics, Elsevier, vol. 62(3-4), pages 482-489, May.
    67. AkbostancI, Elif & Türüt-AsIk, Serap & Tunç, G. Ipek, 2009. "The relationship between income and environment in Turkey: Is there an environmental Kuznets curve?," Energy Policy, Elsevier, vol. 37(3), pages 861-867, March.
    68. Saboori, Behnaz & Sulaiman, Jamalludin & Mohd, Saidatulakmal, 2012. "Economic growth and CO2 emissions in Malaysia: A cointegration analysis of the Environmental Kuznets Curve," Energy Policy, Elsevier, vol. 51(C), pages 184-191.
    69. Begum, Rawshan Ara & Sohag, Kazi & Abdullah, Sharifah Mastura Syed & Jaafar, Mokhtar, 2015. "CO2 emissions, energy consumption, economic and population growth in Malaysia," Renewable and Sustainable Energy Reviews, Elsevier, vol. 41(C), pages 594-601.
    70. Liu, Xuemei, 2005. "Explaining the relationship between CO2 emissions and national income--The role of energy consumption," Economics Letters, Elsevier, vol. 87(3), pages 325-328, June.
    71. Pao, Hsiao-Tien & Tsai, Chung-Ming, 2011. "Multivariate Granger causality between CO2 emissions, energy consumption, FDI (foreign direct investment) and GDP (gross domestic product): Evidence from a panel of BRIC (Brazil, Russian Federation, I," Energy, Elsevier, vol. 36(1), pages 685-693.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:eee:eneeco:v:66:y:2017:i:c:p:360-371 is not listed on IDEAS
    2. repec:eee:eneeco:v:69:y:2018:i:c:p:307-324 is not listed on IDEAS
    3. Gozgor, Giray & Can, Muhlis, 2016. "Does Export Product Quality Matter for CO2 Emissions? Evidence from China," MPRA Paper 71873, University Library of Munich, Germany.
    4. Kayahan Karakul, Aygülen, 2016. "Educating labour force for a green economy and renewable energy jobs in Turkey: A quantitave approach," Renewable and Sustainable Energy Reviews, Elsevier, vol. 63(C), pages 568-578.
    5. repec:eee:renene:v:123:y:2018:i:c:p:36-43 is not listed on IDEAS
    6. Paramati, Sudharshan Reddy & Ummalla, Mallesh & Apergis, Nicholas, 2016. "The effect of foreign direct investment and stock market growth on clean energy use across a panel of emerging market economies," Energy Economics, Elsevier, vol. 56(C), pages 29-41.
    7. repec:eco:journ2:2018-01-20 is not listed on IDEAS
    8. Jing Xu & Min Zhou & Hailong Li, 2016. "ARDL-based research on the nexus among FDI, environmental regulation, and energy consumption in Shanghai (China)," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 84(1), pages 551-564, October.
    9. repec:eee:energy:v:138:y:2017:i:c:p:721-727 is not listed on IDEAS
    10. Dogan, Eyup & Seker, Fahri, 2016. "The influence of real output, renewable and non-renewable energy, trade and financial development on carbon emissions in the top renewable energy countries," Renewable and Sustainable Energy Reviews, Elsevier, vol. 60(C), pages 1074-1085.
    11. repec:eee:rensus:v:77:y:2017:i:c:p:239-245 is not listed on IDEAS
    12. Katircioğlu, Salih Turan & Taşpinar, Nigar, 2017. "Testing the moderating role of financial development in an environmental Kuznets curve: Empirical evidence from Turkey," Renewable and Sustainable Energy Reviews, Elsevier, vol. 68(P1), pages 572-586.
    13. repec:spr:endesu:v:19:y:2017:i:4:d:10.1007_s10668-016-9813-8 is not listed on IDEAS
    14. repec:eee:enepol:v:115:y:2018:i:c:p:32-42 is not listed on IDEAS
    15. Maralgua Och, 2017. "Empirical Investigation of the Environmental Kuznets Curve Hypothesis for Nitrous Oxide Emissions for Mongolia," International Journal of Energy Economics and Policy, Econjournals, vol. 7(1), pages 117-128.
    16. Paramati, Sudharshan Reddy & Apergis, Nicholas & Ummalla, Mallesh, 2017. "Financing clean energy projects through domestic and foreign capital: The role of political cooperation among the EU, the G20 and OECD countries," Energy Economics, Elsevier, vol. 61(C), pages 62-71.
    17. Dogan, Eyup & Seker, Fahri, 2016. "Determinants of CO2 emissions in the European Union: The role of renewable and non-renewable energy," Renewable Energy, Elsevier, vol. 94(C), pages 429-439.

    More about this item

    Keywords

    FDI; EKC; Bounds test; Hatemi-J test;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:rensus:v:52:y:2015:i:c:p:347-356. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/600126/description#description .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.