Does Foreign Direct Investment Matter for Environmental Degradation? Empirical Evidence from Central-Eastern European Countries

This study investigates the foreign direct investment (FDI) impact on the environmental quality of Central and Eastern European (CEE) countries, examining relevant hypotheses over the period 1995-2014. First- and second-generation panel econometric techniques are applied to identify a possible non-linear relationship between FDI and environmental degradation through the examination of the dynamic linkages between FDI, economic growth, energy consumption, and CO2 emissions. The results show that FDI has a non-linear impact on the environmental quality of CEE countries which follows the formation of an inverted U-shaped curve. Although increases in energy consumption result in environmental degradation, the economic growth of CEE countries has a positive effect on their environmental performance as a result of their sustainable development. The empirical findings provide policy implications concerning the implementation of environmental and energy policies related to FDI inflows and sustainable development in the CEE region.