Carbon dioxide emission and its relationship with foreign direct investment: 1974 - 2012 the case of Turkey

In this study, the relationship between carbon dioxide emission and foreign direct investment is investigated in Turkey using annual data covering 1974-2012 period in the context of the pollution haven and halo hypotheses. For the application part, in the beginning, co-integration, vector error correction model (VECM) and VECM based Granger causality analysis are used and both long and short run causalities are detected with their directions. Then, by employing variance decomposition and impulse-response analysis the strength and the signs of the obtained causalities are examined. As a result, along with the causalities which are detected among the other economic variables that are used in this study, a unidirectional, long-run causality from foreign direct investment to emission is found. When this long-run causality is investigated, it is observed that although this causality is not strong, it shows that foreign direct investment has a negative impact on emission. This result indicates that the pollution haven hypothesis is not valid, but the pollution halo hypothesis is weakly supported in Turkey. Additionally, by examining significant causalities among other economic variables, some policy recommendations are proposed.