Moderating role of institutional quality in validation of pollution haven hypothesis in BRICS: a new evidence by using DCCE approach

The technological innovation and strict environmental protocols in the highly developed regions have become the primary sources for foreign direct investment to move in the pollution haven economies. In this regard, this study attempted to identify the role of foreign direct investment (FDI) in the developing economies of the Brazil, Russia, India, China, and South Africa (BRICS) region. For this reason, a dataset was obtained between 1995 and 2019. Chudik and Pesaran's (2015) latest dynamic common correlated effects (DCCE) technique is used because of its new features when integrating the problems of heterogeneity and structural breaks into panel data that are general and do not encompass much recent research in this context. According to the empirical outcomes, foreign direct investment is a source of pollution haven in this region. However, the moderating effect of institutional quality on foreign direct investment has been found negative for ecological footprint. It also found the threshold point where the foreign direct investment effect becomes negative on ecological footprint. Based on these empirical results, this research suggests that foreign direct investment strategy should be maintained in the presence of good institutional efficiency as it enhances the environment and promotes economic development.

Automated summary

This study examines the role of foreign direct investment (FDI) in the developing economies of BRICS. The findings reveal that FDI acts as a pollution haven in the region, but the moderating effect of institutional quality on ecological footprint is negative. The research also identifies a threshold point where FDI has a negative impact on ecological footprint.