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Is There a Trade-off Between Economic Growth, Foreign Direct Investment, International Trade and Environmental Degradation? A Comparison Between Asian Developed and Developing Countries

Author

Listed:
  • Thi Lam Ho
  • Bao-Chau Xuan Nguyen
  • Thu Hoai Ho

Abstract

Against the backdrop of impressive economic growth, the attractive foreign direct investment (FDI) and international trade of Asian countries, this study attempts to examine whether trade-offs between three aspects of economic growth, FDI, international trade and environmental degradation. Panel Autoregressive Distributed Lag (P-ARDL) model with pooled mean group estimates has been applied on panel data from 1996 to 2019. Panel Vector Error Correction model (VECM) Granger causality test is also used to identify multidimensional causal relationships between variables. The research results confirm the existence of a long-term equilibrium relationship between environmental degradation (CO 2 emission) and the combination of economic growth, FDI and trade openness. In the short run, income positively affects CO 2 emission while negative impacts and lower income elasticity have been found in the long run, implying that CO 2 emission decreases and reverses its direction when income rises. Contrasting results collected from two groups of developed versus developing countries, the author reveals a linear relationship with a positive direction between economic growth and environmental degradation in developing countries while opposite results have been shown in developed nations, which supports the environmental Kuznets curve hypothesis in Asian countries. This study also provides sound proof for the ‘pollution haven hypothesis’ and the scale effects on FDI attraction and international trade. By applying relatively new estimators in the field of econometrics to compare the differences between Asian developed and developing countries, the research highlights the appropriate policies contributing to sustainable economic growth, attractive FDI and growing green trade with minimum adverse effects on the environment. JEL Codes: C33, F18, F21, F43, O44, Q40, Q51, Q53

Suggested Citation

  • Thi Lam Ho & Bao-Chau Xuan Nguyen & Thu Hoai Ho, 2026. "Is There a Trade-off Between Economic Growth, Foreign Direct Investment, International Trade and Environmental Degradation? A Comparison Between Asian Developed and Developing Countries," Foreign Trade Review, , vol. 61(1), pages 53-78, February.
    • Handle: RePEc:sae:fortra:v:61:y:2026:i:1:p:53-78
    DOI: 10.1177/00157325231214319

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    Keywords

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    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F18 - International Economics - - Trade - - - Trade and Environment
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling

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