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How Does Foreign Direct Investment Affect Emission Intensity Embedded in Trade?

Author

Listed:
  • Pinar Tat

    (Department of Economics, Gebze Technical University)

  • Abdullah Altun

    (Department of Economics, Gebze Technical University)

  • Halit Yanikkaya

    (Department of Economics, Gebze Technical University)

Abstract

This paper examines the impact of foreign direct investment (FDI) on the trade-related intensity of greenhouse gas (GHG) emissions. By integrating sector-level FDI inflows with detailed trade-related emission data, the study goes beyond conventional approaches by focusing not only on aggregate emissions but specifically on emissions embedded in exports. Using a comprehensive dataset covering 38 countries and 35 sectors from 2005 to 2020, the analysis provides new insights into how multinational production activities lead to global environmental outcomes. The findings reveal that FDI inflows increase emission intensity in trade in both developed and developing countries. The findings are particularly valid for the manufacturing sectors, regardless of trading partners. These results support the pollution haven and race to the bottom hypotheses, highlighting the need for stronger international environmental coordination. The study thus fills a critical gap in the literature by linking international investment strategies to trade-induced emissions and offers clear policy recommendations to align FDI policies with global climate objectives.

Suggested Citation

  • Pinar Tat & Abdullah Altun & Halit Yanikkaya, 2026. "How Does Foreign Direct Investment Affect Emission Intensity Embedded in Trade?," Working Papers 2026-01, Gebze Technical University, Department of Economics.
    • Handle: RePEc:geb:wpaper:2026-01
    as

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    File URL: https://www.gtu.edu.tr/fileman/Files/UserFiles/isletme_fakultesi_dekanligi/econwp/gtuwp-2026-01.pdf
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    References listed on IDEAS

    as
    1. Robert C. Feenstra & Robert Inklaar & Marcel P. Timmer, 2015. "The Next Generation of the Penn World Table," American Economic Review, American Economic Association, vol. 105(10), pages 3150-3182, October.
    2. Eskeland, Gunnar S. & Harrison, Ann E., 2003. "Moving to greener pastures? Multinationals and the pollution haven hypothesis," Journal of Development Economics, Elsevier, vol. 70(1), pages 1-23, February.
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    Keywords

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    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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