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A Dynamic Approach to the FDI-Environment Nexus: The Case of China and India

  • Baek, Jungho
  • Koo, Won W.

The cointegration analysis and a vector error-correction (VEC) model are applied to examine the short- and long-run relationships among foreign direct investment (FDI), economic growth, and the environment in China and India. The results show that FDI inflow plays a pivotal role in determining the short- and long-run movement of economic growth through capital accumulation and technical spillovers in the two countries. However, FDI inflow in both countries is found to have a detrimental effect on environmental quality in both the short- and long-run, supporting pollution haven hypothesis. Finally, it is found that, in the short-run, there exists a unidirectional causality from FDI inflow to economic growth and the environment in China and India - a change in FDI inflow causes a consequence change in environmental quality and economic growth, but the reverse does not hold.

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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida with number 6508.

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Date of creation: 2008
Date of revision:
Handle: RePEc:ags:aaea08:6508
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