Do foreign direct investments influence environmental degradation? Evidence from a panel autoregressive distributed lag model approach to low-, lower-middle-, upper-middle-, and high-income countries

The main aim of the present study is to examine the possible nonlinear relations between foreign direct investments and environmental deterioration for subpanels separated according to the income levels of countries by using the classification made by the World Bank. Total energy consumption, economic growth, and renewable energy share are also considered as determinants of environmental deterioration in the model. Cross-sectional dependence is observed; hence, appropriate panel data unit root and cointegration tests are utilized for which results pointed out mixed integration order. Pooled mean group (PMG) estimator panel auto-regressive distributed lag (ARDL, hereafter) approach is adapted to observe short- and long-run relationships between the variables. Long-run results supported the pollution haven hypothesis as foreign direct investments caused an increase in ecological footprint. Findings are sensitive to different income levels of the subpanels of countries. This empirical study suggests tailored policymaking for every income level subpanel to ensure sustainable development.