The effects of trade, foreign direct investment, and economic growth on environmental quality and overshoot: a dynamic common correlation effects approach

This study empirically investigates the effects of trade, foreign direct investment, and growth on environmental quality and sustainability. In order to attain the objective of the study, we adopt the novel dynamic common correlation effect technique that accounts for cross-sectional dependence. A panel of 109 countries from 1995 to 2016 was used for the study, based on availability of data. The results indicated that economic growth, trade openness, and FDI generally degrade the environment quality, while control variables like population and human development are environmentally friendly. Income-level disparity is equally noticed with the division of the panel into low-income, lower middle-income, and upper middle-income and high-income countries. For sustainability, only human development is seen to be exerting a positive effect on ecological overshoot. The environmental Kuznets curve (EKC) hypothesis is equally validated for the global sample and for each income level but more significant in lower middle-income countries. The results indicate that efforts to improve the quality of the environment and sustain Mother Nature need to be encouraged. There is need to introduce abatement policies for firms, encourage renewable energy consumption, discourage investment in fossil fuel, implement the Common Agricultural policy, and adopt trade policy with legislation on minimum pollution within all countries.