Impact of FDI and trade on environmental quality in the CAFTA-DR region

ABSTRACT

This study investigates the relationship between foreign direct investment (FDI), trade and industrial emissions in member countries of the Central American Free Trade Agreement–Dominican Republic (CAFTA-DR) between 1979 and 2010. Our model is based on extant literature about the Environmental Kuznets’ Curve framework. In this study, we consider sulphur dioxide (SO₂), nitrogen oxides (NO_x) and carbon dioxide (CO₂) as our dependent variables. Our key independent variables are FDI and trade. Our study finds evidence that foreign investment and trade have had a negative impact on our selected emissions. However, our models also estimate turning points which are below the current GDP per capita values for all CAFTA-DR member countries. This is an encouraging trend in terms of the potential reduction in emissions in the region.

KEYWORDS:

• Environmental Kuznets’ Curve (EKC)
• FDI
• trade
• environmental quality
• CAFTA-DR

JEL CLASSIFICATION:

• C23
• F18
• Q54
• Q59

Disclosure statement

No potential conflict of interest was reported by the authors.