Investigating the Nexus between CO2 Emissions, Energy Transition Investment, FDI, Energy Consumption and Total Factor Productivity: Evidence from Emerging Countries
Using panel data for 12 emerging markets from 2004 to 2019, we develop and test a new hypothesis about carbon emission (CE) mitigation being an investment opportunity as per the heterodox approach rather than a cost as per the orthodox approach. We also revisit the validity of pollution haven hypothesis (PHH) by augmenting the equation with the new variable, energy transition investments (ETIs). Moreover, unlike previous research, we differentiate between the direct and indirect effects of FDI, and to measure economic activity, we use total factor productivity (TFP) instead of GDP. The dynamic heterogeneous estimation technique is specified and estimated. Our results validate the ETI-augmented PHH and highlight the indirect effect of FDI on CE through the TFP, ETIs, and energy consumption channels. Furthermore, ETIs are found to have a very significant, albeit small, carbon suppressive effect suggesting the current ETIs' levels are not yet sufficient to secure climate change mitigation in emerging markets.We also find support for our newly developed hypothesis. An important policy implication is that if the identified ETIs patterns were to continue, mitigation would be intensified in emerging markets, offering the opportunity to steer the energy sector onto a more sustainable path.
Keywords - Carbon Emission Mitigation; Energy Transition Investment; Total Factor Productivity; Foreign Direct Investment; Energy Consumption; PHH; SDG7