Which is more important, foreign direct investment inflow or outflow, on the pollution of European Union countries? Evidence from Panel Fourier symmetric and asymmetric causality

Abstract

Uncertainty remains regarding the impact of foreign direct investments on countries' environmental policies and pollution levels. Therefore, this study examines the relationship between foreign direct investment inflows, outflows, and carbon dioxide emissions for EU (European Union) member states. Accordingly, the data for the period 1993–2019 were subjected to the Panel Fourier symmetric and asymmetric causality tests for 21 EU countries. According to the Panel Fourier symmetric causality test results, the effect of foreign investment outflows on carbon dioxide emissions is more dominant in general. While there is a bidirectional relationship between these variables in the Austrian and Slovak Republics, there is a unidirectional relationship between foreign investment outflows to carbon dioxide emissions in Belgium, Bulgaria, Cyprus, Ireland, and Portugal. On the other hand, one-way causality was found from foreign investment inflows to carbon dioxide emissions in Belgium, Cyprus, France, Ireland, and Romania and from carbon dioxide emissions to foreign investment inflows in Finland, Greece, and Sweden. According to the Panel Fourier asymmetric causality test results, causality between variables is statistically significant in many countries. This shows that the asymmetric relationship is essential for the variables.