The Impact of Foreign Direct Investment on Climatic Changes in Middle Income Asian Countries

Abstract : The conceptual and methodological framework of this study is designed to examine the relationships among the key variables influencing climate outcomes in developing regions. The current research investigates how the four factors of Foreign Direct Investment (FDI), Social Globalization, GDP per Capita, and Urban Population affect the Climate Change situation in middle-income Asian countries during the years 2004 to 2023. The study is based on a balanced panel dataset and applies advanced econometric techniques such as panel unit root tests, panel cointegration analysis, and the Autoregressive Distributed Lag (ARDL) model. The estimating methods used include the Mean Group (MG), Pooled Mean Group (PMG), and Dynamic Fixed Effects (DFE). Among the post-estimation tests, the Hausman test indicated that the mean group estimator was the most appropriate, suggesting the presence of long-run heterogeneity among the countries in the sample. The findings indicate that in the short run, foreign direct investment (FDI) and GDP per capita significantly contribute to CO₂ emissions, highlighting a negative impact on the environment due to economic growth. While social globalization also increases emissions, urbanization has a negative effect, suggesting that well-planned urban environments can reduce emissions. Over time, the influences of FDI and GDP per capita diminish in significance, reflecting a shift towards cleaner production. A negative error correction coefficient indicates a stable long-run equilibrium among the examined variables. The study finds that middle-income Asian countries are in a transitional stage. In the short term, economic and social forces drive emissions, but in the long term, institutional development and urban efficiency promote sustainability. Policy recommendations include promoting green FDI, strengthening environmental regulations, and encouraging sustainable urban planning to achieve low-carbon economic growth.