Growth, Foreign Direct Investment And Environmental Outcomes In South Asian Economies

Abstract

This study investigates the relationship between economic growth, foreign direct investment, energy consumption and environmental degradation in South Asian countries over the period 1997–2022. Using balanced panel data for eight countries and employing a fixed effects estimation approach, carbon dioxide emissions are used as a proxy for environmental degradation. The results provide robust evidence in support of the Environmental Kuznets Curve hypothesis, revealing an inverted U-shaped relationship between economic growth and carbon emissions. Economic growth, foreign direct investment, non-renewable energy consumption and trade openness are found to exacerbate environmental degradation, whereas renewable energy consumption significantly reduces carbon emissions. These findings suggest that economic expansion and investment-led growth in South Asia have occurred largely at the expense of environmental quality. The study highlights the importance of strengthening environmental regulations, promoting renewable energy adoption and guiding foreign investment toward environmentally sustainable activities to achieve long-term sustainable development in the region.