Modeling the nexus between pollutant emission, energy consumption, foreign direct investment, and economic growth: new insights from China

Abstract

Most nations are predominately preoccupied with the need to increase economic growth amidst pressure for increased energy consumption. However, higher energy consumption from fossil fuel has its environmental implication(s) especially in a high industrial economy like China. In this context, the current study explores the interaction between pollutant emission, foreign direct investment, energy consumption, tourism arrival, and economic growth for quarterly frequency data from 1995Q1 to 2016Q4 for econometrics analysis. Pesaran’s autoregressive distributed lag–bound test traces long-run relationship between all outlined variables over the investigated period. Empirical results show positive relationship between pollutant emissions with all other variables with the exception of economic growth. This further exposes the environmental degradation in China with the curtailing strength from the GDP. The Granger causality analysis detects that CO2 emissions and energy consumption show a two-way causality observed. Also, one-way causality existing between growth and foreign direct investment is seen running to pollutant emission. Furthermore, one-way causality is observed among foreign direct investment, energy consumption, pollutant emission, and tourism arrivals with economic growth, and this established their impact on the economic growth which will be a guide to the policy implication on how to ameliorate environmental degradation from the effect of consumption of fossil energy sources and foreign direct investment–induced pollutant emission.