Environmental consequences of foreign direct investment influx and conventional energy consumption: evidence from dynamic ARDL simulation for Turkey

The preponderance of emerging economies confronts significant trade-offs between economic growth and environmental sustainability considerations, and Turkey is no exception. This study draws strength from the United Nations Sustainable Development Goals (UN-SDGs-7,11,12 & 13). To this end, the present study explores the role of the environmental Kuznets curve (EKC) hypothesis for the case of Turkey for annual frequency data from 1970 to 2020. The present study leverages on the novel dynamic autoregressive-distributed lag (DARDL) methodology and Bayer and Hanck combined cointegration test. The combined Bayer and Hanck cointegration test alongside ARDL bounds test traces equilibrium relationship between economic growth, urbanization, FDI, energy use, and CO2 emission over the investigated period. Empirical results from the DARDL simulation analysis validates the EKC hypothesis. These results suggest that environmental quality is being compromised for economic growth at the earlier stage of economic growth (scale stage). The EKC phenomenon is affirmed as a 1% increase in economic growth increase emission level by 0.1580% and quadratic economic growth decrease emission by 0.1095% in the short and long run, respectively. Similarly, urbanization and energy used in both the short and long run also worsen environmental quality while FDI influx in the long run improves environmental quality in Turkey. These outcomes have far-reaching environment-urbanization growth implications. From a policy lens, the current study subscribed to the environmental stick policies and investment on strategies on a paradigm shift from fossil-fuel energy consumption base to renewables. Further insights are highlighted in the concluding section.

Automated summary

This study explores the trade-offs between economic growth and environmental sustainability in emerging economies, using Turkey as a case study. The findings support the environmental Kuznets curve hypothesis, showing that environmental quality may be compromised for economic growth in the earlier stages. The study suggests that policies should focus on transitioning to renewable energy sources and implementing stricter environmental regulations.