Foreign Direct Investment, Environmental Pollution and Economic Growth—An Insight from Non-Linear ARDL Co-Integration Approach

Abstract

The paper examines the impact of foreign direct investment and environmental pollution on economic growth in an emerging economy. We used annual data covering the period of 1986–2020 and the non-linear autoregressive distributed lag (NARDL) to analyze the positive and negative co-integrated variables, and our findings support the asymmetric relationship between foreign direct investment, environmental pollution and economic growth in both the short and long run, as well as a long-run relationship between environmental pollution and economic growth. A one-percent increase in environmental pollution leads to a positive change in economic performance by 0.662 percent. Adversely, a one-percent decrease in environmental pollution leads to a negative change in economic performance by 0.212 percent. Vietnam is an emerging market, and capital needs for economic activities are essential. However, the research results show that a disproportionate impact of foreign direct investment on economic growth is recorded in the long run, and a disproportionate impact of environmental pollution on the economy occurs in both the short and long term. Therefore, the government needs to have policies to attract foreign investment to develop a green and sustainable economy.