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Long-Run Dynamics of Gas Emissions, Economic Growth, and Low-Carbon Energy in the European Union: The Fostering Effect of FDI and Trade

Author

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  • Alexandra Horobet

    (Department of International Business and Economics, Bucharest University of Economic Studies, 010374 București, Romania)

  • Oana Cristina Popovici

    (Romanian Academy, Institute for Economic Forecasting, Bucharest University of Economic Studies, 010374 București, Romania)

  • Emanuela Zlatea

    (Department of International Business and Economics, Bucharest University of Economic Studies, 010374 București, Romania)

  • Lucian Belascu

    (Department of Management, Marketing and Business Administration, “Lucian Blaga” University of Sibiu, 550024 Sibiu, Romania)

  • Dan Gabriel Dumitrescu

    (Department of International Business and Economics, Bucharest University of Economic Studies, 010374 București, Romania)

  • Stefania Cristina Curea

    (Department of Financial and Economic Analysis, Bucharest University of Economic Studies, 010374 București, Romania)

Abstract

The European Union’s environmental goal by 2050 is to become the first climate-neutral continent in the world. This means specific efforts for diversifying the energy mix and investing in low-carbon energy. Our study investigates the nexus among carbon emissions, energy consumption and mix, and economic growth in a modified framework that includes the contribution of inward foreign direct investments and international trade to lowering air pollution. We have used a two-step approach to explore in more detail the links between these variables in 24 EU countries over the period 1995–2018, followed by a panel VECM analysis. Our results indicate that there is a unidirectional link between economic growth and CO 2 emissions, which should imply a decoupling of environmental improvement measures from the pace of economic growth. We also find bidirectional causal relationships between low-carbon energy shares in consumption and CO 2 emissions, as well as between low-carbon energy share in consumption and GDP per capita, which confirms both pollution haven and the halo effect hypotheses for FDI on gas emissions. However, in the long term, FDI, exports, and imports have positively impacted the reduction in CO 2 emissions; therefore, stronger EU investment and trade integration should be promoted to improve the quality of the environment.

Suggested Citation

  • Alexandra Horobet & Oana Cristina Popovici & Emanuela Zlatea & Lucian Belascu & Dan Gabriel Dumitrescu & Stefania Cristina Curea, 2021. "Long-Run Dynamics of Gas Emissions, Economic Growth, and Low-Carbon Energy in the European Union: The Fostering Effect of FDI and Trade," Energies, MDPI, vol. 14(10), pages 1-30, May.
    • Handle: RePEc:gam:jeners:v:14:y:2021:i:10:p:2858-:d:555443
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