Nexus of economic growth, energy consumption, FDI and emissions: a tale of Bangladesh

Bangladesh observed an unprecedented growth in gross domestic product (GDP) and foreign direct investments (FDI) over the last decade. However, the country also observed an annual average increase in greenhouse gas emissions (GHGs) by 3.3% between 2000 and 2016. Therefore, this study aims to understand the dynamic relationship among GDP, FDI and GHGs, and investigate the existence of the Environmental Kuznets Curve (EKC) so that appropriate policy options could be taken to reduce emissions while sustaining economic growth. This study adopted the Vector Error Correction Model (VECM) and Granger Causality tests to achieve the objectives. Results suggest the EKC hypothesis to be positive for the nation. The causality test negates short- and long-run causality from energy consumption per capita (ECPC), GDP per capita (GDPPC), and FDI to GHGs at a significance level of 0.05. However, a bi-directional causality is running from ECPC to FDI and GDP per capita in the short-run. By scholarly contributing to the debate between development and GHGs, this study attempts to bridge-up the current gap in the literature, i.e., scientific investigation of the EKC hypothesis and the effects of FDI on energy consumption and GHGs in Bangladesh.

Automated summary

The study found a positive Environmental Kuznets Curve in Bangladesh, with a bi-directional causality between energy consumption and GDP as well as foreign direct investment in the short-run.