Foreign investment and CO2 emissions: do technological innovation and institutional quality matter? Evidence from system GMM approach.

The study examines the moderating role of institutional quality and technological innovation on the empirical relationship between FDI inflows and four indicator variables of CO2emissions in 40 Asian countries for the period 1996-2016, by using generalized method of moment (GMM) estimation. First, from non-interactive regression, FDI inflows have positive impacts on CO2emissions; over all, from our empirical results, we conclude that the moderating role of institutional quality and technological innovation is crucial in the nexus between FDI and carbon CO2emissions and the interaction between institutional quality indicators and FDI inflows significantly reduce the level of CO2 emissions. Furthermore, the significant moderating effect of technological innovation is observed on the association between FDI and CO2 emissions. The results are important for policy makers in setting up long- and short-term policy to protect environmental quality.