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The Role of Intra-Industry Trade, Foreign Direct Investment, and Renewable Energy on Portuguese Carbon Dioxide Emissions

Author

Listed:
  • Nuno Carlos Leitão

    (Center for Advanced Studies in Management and Economics, Polytechnic Institute of Santarém, University of Évora, 7000-812 Évora, Portugal
    Center for African and Development Studies, Lisbon University, 1200-781 Lisbon, Portugal)

  • Matheus Koengkan

    (Governance, Competitiveness and Public Policies (GOVCOPP), Department of Economics, Management, Industrial Engineering and Tourism (DEGEIT), University of Aveiro, 3810-193 Aveiro, Portugal
    University of Coimbra Institute for Legal Research (UCILeR), University of Coimbra, 3000-018 Coimbra, Portugal)

  • José Alberto Fuinhas

    (Faculty of Economics, and Centre for Business and Economics Research (CeBER), University of Coimbra, 3004-512 Coimbra, Portugal)

Abstract

This paper revisited the link between intra-industry trade (IIT) between Portugal and Spain and Portuguese carbon dioxide (CO 2 ) emissions. The research also considers the effects of foreign direct investment (FDI) on CO 2 emissions, pondering the arguments of the pollution haven hypothesis and the halo hypothesis. As an econometric strategy, this investigation has applied panel data, namely a Pooled Mean Group of an Autoregressive Distributed Lag (ARDL) model and Panel Quantile Regression (PQR). The preliminary unit root tests indicated that IIT, Portuguese and Spanish renewable energy, and Portuguese FDI are integrated into the first differences and stationary with the second generation test (Pesaran methodology). In the next step, this study applied the multicollinearity test and cross-dependence between the variables. The variance inflation factor test demonstrated that FDI and IIT have no multicollinear problems. However, as expected, collinearity exists between Portuguese and Spanish renewable energy. Regarding the cross-sectional dependence test, this investigation concluded that the variables have a dependence between them. The cointegration test revealed that the variables are overall cointegrated. In the econometric results with the ARDL estimator, this investigation has found that IIT between Portugal and Spain is negatively correlated with Portuguese CO 2 emissions, showing that this type of trade encourages environmental improvements. However, the PQR demonstrates that there is an opposite relationship. According to this, Portuguese and Spanish renewable energy is negatively impacted by CO 2 emissions, revealing that renewable energy aims to decrease pollution. Finally, Portuguese FDI reduces CO 2 emissions, which is explained by product differentiation, innovation, and monopolistic competition.

Suggested Citation

  • Nuno Carlos Leitão & Matheus Koengkan & José Alberto Fuinhas, 2022. "The Role of Intra-Industry Trade, Foreign Direct Investment, and Renewable Energy on Portuguese Carbon Dioxide Emissions," Sustainability, MDPI, vol. 14(22), pages 1-21, November.
  • Handle: RePEc:gam:jsusta:v:14:y:2022:i:22:p:15131-:d:973385
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