Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 460: The Impact of FDI on Regional Air Pollution in the Republic of Korea: A Way Ahead to Achieve the Green Growth Strategy?

Erik Hille (), Muhammad Shahbaz () and Imad Moosa ()
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Erik Hille: HHL Leipzig Graduate School of Management
Muhammad Shahbaz: Montpellier Business School
Imad Moosa: RMIT University

Abstract: Can FDI help to reduce regional air pollution emissions in Korea? Given the proclamation of a far-reaching national green growth strategy that requires a shift in public and private investments, this paper addresses the need for empirical estimates on the environmental consequences of FDI inflows into Korea. Using a simultaneous equations model the impacts of FDI inflows are decomposed into direct as well as indirect scale, composition, and technique effects. Thereby, the analysis utilizes panel data on six air pollutants in 16 Korean provinces and self-governing cities for the time period 2000 to 2011. The estimation results show that FDI inflows concurrently stimulate regional economic growth and reduce air pollution intensities. However, the total level of air emissions mostly remains unchanged. While confirming the findings of the existing national level research on the FDI‐growth relationship in Korea, the results are partly contrary to the respective earlier findings on the FDI‐environment nexus. Given Korea’s high level of development paired with the aforementioned impact on economic growth and air pollution intensities, foreign investments are, therefore, regarded as one potential pillar to achieve the goals of the green growth strategy.

Keywords: Foreign Direct Investments; Air Pollution; Green Growth; Decomposition Analysis; Republic of Korea

JEL-codes: F21; O44; Q53; Q56

31 pages, First version: August 30, 2017. Revised: May 7, 2018.

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