Dynamic Causality Among FDI, Economic Growth and CO2 Emissions in India With Open Markets and Technology Gap

Ritu Rana, Manoj Sharma

OAI: oai:igi-global.com:255694 • DOI: 10.4018/IJABIM.2020070102

This study examines the causality relationships between FDI, economic growth (in terms of GDP) and the natural environment, in terms of CO2 emissions and energy consumption, along with two more variables of interest i.e., trade openness and technology gap in the context of India. The data used in the study is obtained from World Development Indicators (WDI) of the World Bank Group for the period 1980 to 2014. The study employed the dynamic multivariate Toda-Yamamoto (TY) approach that uses the modified Wald (MWALD) test. The results show that FDI is neither causing economic growth nor is it bridging the technology gap directly in India. The results also indicate the existence of a Pollution Haven Hypothesis in India as the FDI is causing environmental degradation, i.e. CO2 emissions and energy consumption. Also, FDI is, though not causing GDP directly, but is doing so indirectly through CO2 emissions validating the existence of Pollution Haven Hypothesis. FDI is causing trade openness in India, but that openness is again causing more FDI which is doing no good for India.

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