Pollution Haven, Pollution Halo, or Pollution Hell? The Impact of Foreign Direct Investment on CO2 Emission and Temperature Rise in Fragile Five Countries

Purpose: The purpose of this study is to investigate how foreign direct investment (FDI) affects the environmental quality of the Fragile Five countries, with a particular emphasis on how it may transfer ecologically damaging sectors to host countries. The link between FDI inflow, CO2 emissions, and temperature rise in the selected countries between 1970 and 2021 is specifically examined. Design/methodology: The Panel Fourier Granger Causality Test is used in the study to examine the causative relationships among temperature rise, CO2 emissions, and FDI. In order to effectively approximate the structural breaks in the series, Bahmani-Oskooee et al. (2014) Panel Unit Root Test with Sharp and Smooth Breaks was used. Additionally, the Pollution Haven Hypothesis (PHH) is tested for the selected countries. Findings: In the Fragile Five countries, the findings show a causal relationship between CO2 emissions and temperature rise, as well as between FDI inflow and CO2 emissions. PHH for these countries is supported by these findings, which also imply that FDI inflows worsen environmental deterioration and contribute to warming. Originality/value: This study contributes to the body of literature by offering empirical proof of the long-term environmental effects of FDI inflows into the Fragile Five countries. Additionally, the PHH is tested for selected countries and one-way causality from FDI to CO2 emission reveals that PHH is valid for selected countries.