Impact of FDI and trade on environmental quality in the CAFTA-DR region

Abstract

© 2017 Informa UK Limited, trading as Taylor & Francis Group. This study investigates the relationship between foreign direct investment (FDI), trade and industrial emissions in member countries of the Central American Free Trade Agreement–Dominican Republic (CAFTA-DR) between 1979 and 2010. Our model is based on extant literature about the Environmental Kuznets’ Curve framework. In this study, we consider sulphur dioxide (SO2), nitrogen oxides (NOx) and carbon dioxide (CO2) as our dependent variables. Our key independent variables are FDI and trade. Our study finds evidence that foreign investment and trade have had a negative impact on our selected emissions. However, our models also estimate turning points which are below the current GDP per capita values for all CAFTA-DR member countries. This is an encouraging trend in terms of the potential reduction in emissions in the region.