Abstract
This work investigates the relationship between foreign direct investment (FDI) inflowing in the transport sector and its connected activities of storage and communication of 30 Organisation for Economic Co-operation and Development (OECD) countries and the carbon dioxide (CO2) emission from sectoral fuel combustion. To this purpose, an unbalanced dataset containing statistical information, all derived from different databases of various international organizations, for the 25 years between 1981 and 2005 is analysed through the use of the econometric technique of panel data. Apart from other evidence, the empirical result shows the existence of a negative relationship, although quantitatively very low, characterizing the cumulative effect of the considered type of FDI on CO2. This helps us to understand that the foreign investment flow arriving in the transport sector of the considered OECD receiving countries does not generate a dangerous detriment to the environment as can generally be expected. As a result, we argue in favour of those policy prescriptions suggesting its enforcement.
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Notes
These terms, which now belong to standard economic terminology, were entered in the economic literature in 1991 when, in a seminal work by Grossman and Krueger, the environmental impact of trade liberalization within the context of the NAFTA agreement was analyzed (Grossman and Krueger 1991, 1993). Although these terms were coined in relation to trade, they are also used for the case of FDI studies. This makes sense if we think that trade and FDI are the two faces of the same coin due to the strong correlation existing between them and proven by various studies (e.g. Ghosh 2007; OECD 2002a).
Although theoretically different, “technique” and “scale” effects appear very similar. In fact, they are quite difficult to separate especially with regard to their consideration in empirical analysis. However, as will be clarified later in the model description section, we can refer to some approaches to distinguish between them.
The OECD countries considered for the analysis are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Republic of Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States of America. The remaining four OECD countries (Chile, Estonia, Israel and Slovenia) are not here considered because their accession only took place in 2010. At the last visit made in November 2011, the OECD database within the Economic and Social Data Service (ESDS) International statistical support tool (which is the only database available reporting data on the sectoral breakdown of FDI), did not yet report information on these countries based on the OECD International Direct Investment Statistics (vol. 2010, release 01) with updates at 2007.
This sectoral approach of the analysis represents the original aspect of this work which might help to build a clearer and more correct picture of the investigated relationship.
Other works use two different variables to separately measure scale and technique effects. While the earlier is measured in terms of GDP per squared km., the per-capita GDP is used for the latter (i.e. Antweiler et Al. 2001). In agreement with Cole and Elliott (2003), we use the GDP per capita to capture the technique and the scale effects. Other versions of the GDP variable (such as the GDP per squared km.) were not result significant. In addition, the consideration by Cole and Elliott (2003) that in the real world the scale effect is likely to be contemporaneous whilst the technique effect is likely to be the result of a past income dynamic (which would suggest diversifying the variables by using lagged forms) can be set aside for the induced-GDP technique and scale effect. We find both the coefficients significant when considering the GDP variables at time t. The consideration appears to be valid for the induced-FDI technique and scale effects since they are significant when the FDI variable in isolation is considered with two lags and FDI squared at time t.
In other relevant works (e.g. Antweiler et al. 2001), scale and technique effects are separately measured by employing two different identities. While the earlier is measured in terms of GDP per squared km., the per-capita GDP is used for the latter. As will be seen in the specific sections, following Cole and Elliott (2003), who use per-capita GDP to capture both the effects, we employ the sectoral GDP per-worker (in the case of the agriculture and fishing and manufacturing sectors) and the GDP per-capita (in the case of the transport and communication sector). The GDP per squared km., also tried in our analyses, came out insignificant.
The estimation of this model shows a highly significant F-test for the joint significance of the variable considered with F(10, 218) = 9.25 and p-value = 0.0000. We also run a F-test to check for the joint significance of the two variables associated with GDP and the other two variables associated with FDI. The earlier test generates a Chi2 = 10.84 and a p-value = 0.0044. The latter shows a Chi2 = 7.01 and a p-value = 0.0300. As a result, we can say that the inclusion of these variables in our model does not affect its correct specification.
Remember that in our analysis the FDI variable had a two-year lag. A possible explanation of this could be that the effect of FDI on the pollutant becomes evident two years after the investment implementation.
It must be highlighted that the sample mean of the OECD countries’ sectoral inflow of FDI was considered in terms of absolute value, because, as reported in Table 2, it shows a negative result (about −3.29) and, for this reason, is associated with disinvestment rather than investment.
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Pazienza, P. The Environmental Impact of the FDI Inflow in the Transport Sector of OECD Countries and Policy Implications. Int Adv Econ Res 21, 105–116 (2015). https://doi.org/10.1007/s11294-014-9511-y
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DOI: https://doi.org/10.1007/s11294-014-9511-y
Keywords
- Trade and the environment
- Globalization and the environment
- Environment and development
- Environment and trade
- Sustainability
- Transportation systems: government pricing and policy