Sectoral foreign direct investment and environmental degradation: new insights from diversification of energy mix containing fossil fuels and renewable energy

The objective of the study is to extend the existing literature by investigating the effects of foreign direct investment, gross domestic products and per capita and energy diversification on the nitrogen oxide emissions in Brazil, Russia, India, China and South Africa (BRICS) by using annual data during the period 1992-2019. As per our knowledge, the present study is a first of its kind to examine the impact of a new energy diversification index, based on Herfindahl-Hirschman framework on pollution. This study has adopted a new quantile regression augmented method of moments, which is capable of producing the total impacts of the independent variables across the entire distribution of nitrogen oxides emissions. The findings suggest that an increase in foreign direct investment leads to a decrease in nitrogen oxides emissions at the aggregate level and in both manufacturing and service sectors. We observe that foreign direct investment leads to an increase in nitrogen oxides emissions in the agricultural sector in most of the quantiles. Diversification towards renewable energy causes a decrease in nitrogen oxides emissions in most quantiles at aggregate level, agricultural and manufacturing sectors, whilst diversification leads to an increase in nitrogen oxides emissions in the service sector. The findings also suggest that GDP per capita leads to an increase in NOx emissions in all the quantiles. The study suggests the policy to use and attract more clean energy through foreign direct investment for towards the achievement of sustainable development.

Automated summary

The objective of this study is to investigate the impact of foreign direct investment, gross domestic products, and energy diversification on nitrogen oxide emissions in BRICS countries. The study utilizes a new energy diversification index and a quantile regression augmented method of moments to analyze the data from 1992-2019. The findings indicate that foreign direct investment reduces nitrogen oxide emissions in aggregate and manufacturing sectors, but increases emissions in the agricultural sector. Diversification towards renewable energy decreases emissions in most sectors, except for the service sector. GDP per capita is found to increase NOx emissions. The study suggests using foreign direct investment to promote clean energy for sustainable development.