Testing pollution haven and pollution halo hypotheses for Turkey: a new perspective

In this study, we analyzed the asymmetric short- and long-run causal links between foreign direct investments and emissions in Turkey over the time period 1974-2018. Using hidden co-integration techniques, we defined and tested the asymmetric pollution haven and asymmetric pollution halo hypotheses. To evaluate the long-run asymmetric causal relationship, we estimated both the crouching error correction model and vector error correction model. We performed a stepwise regression model to estimate the crouching error correction model. The empirical results confirmed an asymmetric causal relationship between positive shocks of foreign direct investments and positive movements in emissions in the short run as well as an asymmetric causal link between negative and positive shocks of foreign direct investments and positive emissions in the long run. Furthermore, the results showed that increases in foreign direct investments led to a decrease in the rate of emission growth in both the short and long run. This finding supports the validity of the asymmetric pollution halo hypothesis in Turkey's case. Policymakers should strengthen their environmental protection laws to protect the quality of their environments as well as implement policies that encourage the use of clean technology and tax incentives that increase foreign direct investment inflows.