The Effect of FDI on Environmental Degradation in Romania: Testing the Pollution Haven Hypothesis

The study examines the relationship between CO2 emissions, trade openness, GDP growth and foreign direct investment (FDI) in Romania. The research aims to provide empirical evidence for either the pollution haven hypothesis (PHH) or the pollution halo effect (PHE). The pollution haven hypothesis suggests that countries with weaker environmental regulations and lower environmental quality are more attractive to FDI, while the pollution halo effect posits that countries with high levels of environmental protection and quality can generate positive spillover effects for FDI. The findings suggest a significant relationship between CO2 emissions, GDP growth and FDI inflows, with GDP growth having a greater effect on FDI than CO2 emissions. GDP growth has a causal effect on CO2 emissions, while CO2 emissions have a causal effect on FDI. These findings have important policy implications, as they highlight the interplay between economic growth, environmental degradation, and foreign investment. Policies aimed at reducing emissions must be comprehensive and coordinated in order to achieve significant emissions reductions and strike a balance between economic growth and environmental protection.