A Moderated Mediation Model of the Effect of Foreign Direct Investments on CO2 Emissions: Panel Data Evidence from GCC Countries

This study aims to analyze the moderating impact of governance in the relationship between FDI and CO2 emissions for the case of Golf Cooperation Council (GCC) countries and by focusing on a moderated mediation model at two stages. We will try to determine whether governance in the GCC countries as resource-abundant countries is acting between the FDI and the energy consumption or as a moderating factor of the effects of energy use on environmental degradation. In our research, we examined the conditional effects of FDI on pollution through energy consumption. The results found based on fixed and variable effects models validate the pollution haven hypothesis (PHH) according to our model of the moderated mediation. The results of the first stage analysis showed that the rule of law is the most important governance mechanism for conditioning the effects of foreign direct investments on energy demand, while the findings of the second stage analysis indicated the government effectiveness is the most appropriate governance instrument to moderate the effects of energy use on pollution.