Assessing The FDI-Environment Nexus Using The Load Capacity Factor: A Seemingly Unrelated Regression Approach For G7 And Brics-T

Year 2026, Volume: 13 Issue: 1 , 309 - 325 , 19.02.2026

Cem Kaan Arslan , Serap Barış

https://doi.org/10.26650/JEPR1826466

https://izlik.org/JA35LN77UN

Abstract

The pursuit of economic growth has intensified countries’ efforts to attract foreign direct investment; however, growing concerns regarding the environmental consequences of such inflows underscore the need for broader and more comprehensive ecological indicators. This study contributes to the literature by examining the relationship between foreign direct investment and the load capacity factor, a holistic environmental quality measure that captures both ecological demand and ecological supply, thereby moving beyond traditional pollution-based metrics. Through this focus, the study also engages with the theoretical expectations of the Pollution Haven and Pollution Halo hypotheses. In addition, the study tests the load capacity curve hypothesis, which proposes that environmental quality initially deteriorates as income increases but improves once a certain level of economic development has been achieved.

Using data from G7 and BRICS-T countries for the period 1992–2022, and estimating a Seemingly Unrelated Regression model, the findings reveal a negative and statistically significant relationship between foreign direct investment and the load capacity factor for BRICS-T economies, consistent with the Pollution Haven hypothesis. In contrast, for G7 countries, the relationship between foreign direct investment and the load capacity factor is not statistically significant, whereas per capita income displays the expected nonlinear pattern supporting the load capacity curve hypothesis. Overall, the results indicate that foreign direct investment places additional ecological pressure on emerging economies, whereas environmental quality in advanced economies improves after reaching higher income levels.

Keywords

Foreign direct investment , Load capacity factor , Pollution haven hypothesis , Load capacity curve hypothesis , Seemingly unrelated regression

References

• Akbostanci, E., Tunc, G. I., & Turut-Aşik, S. (2007). Pollution haven hypothesis and the role of dirty industries in Turkey’s exports. Environment and Development Economics, 12(2), 297-322. google scholar
• Ali, E. B., Agbozo, E., & Aboagye, E. M. (2025). Revisiting the linkage between economic advancement, FDI, renewable energy, environmental goods, and the load capacity factor. Environment, Innovation and Management, 1, 2550016. google scholar
• Al-Mulali, U., Saboori, B., & Öztürk, İ. (2015). Investigating the environmental Kuznets curve hypothesis in Vietnam. Energy Policy, 76, 123–131. doi:10.1016/j.enpol.2014.11.019 google scholar
• Altıntaş, H., & Kassouri, Y. (2020). Is the environmental Kuznets Curve in Europe related to the per-capita ecological footprint or CO2 emissions?. Ecological indicators, 113, 106187. google scholar
• Annor, L. D. J., Robaina, M., Vieira, E., & Mota, J. (2025). Pursuing the carbon neutrality agenda: The role of financial development, foreign direct investment, and effective governance. The European Journal of Development Research, 1-32. google scholar
• Awosusi, A. A., Kutlay, K., Altuntaş, M., Khodjiev, B., Agyekum, E. B., Shouran, M., … & Kamel, S. (2022). A roadmap toward achieving sustainable environment: evaluating the impact of technological innovation and globalization on load capacity factor. International journal of environmental research and public health, 19(6), 3288. google scholar
• Ayad, H., Lefilef, A., Jahanger, A., & Balsalobre-Lorente, D. (2024). Reinvestigate the effect of foreign direct investment on environmental quality in the MENA region: is there any difference using the load capacity factor?. Journal of the Knowledge Economy, 15(3), 14810-14840. google scholar
• Bakirtas, I., & Cetin, M. A. (2017). Revisiting the environmental Kuznets curve and pollution haven hypotheses: MIKTA sample. Environmental Science and Pollution Research. 24, 18273–18283. doi:10.1007/s11356-017-9462-y google scholar
• Balsalobre-Lorente, D., Ibanez-Luzon, L., Usman, M., & Shahbaz, M. (2022). The environmental Kuznets curve, based on the economic complexity, and the pollution haven hypothesis in PIIGS countries. Renewable Energy, 185, 1441-1455. google scholar
• Başar, S., ve Temurlenk, M. S. (2007). “Çevreye Uyarlanmış Kuznets Eğrisi: Türkiye Üzerine Bir Uygulama”. Atatürk Üniversitesi İktisadi ve İdari Bilimler Dergisi, 21(1), 1-12. google scholar
• Bo, S. (2011). A Literature Survey on Environmental Kuznets Curve. Energy Procedia, 5: 1322-1325. google scholar
• Chancel, L. (2022). Global carbon inequality over 1990-2019. Nature Sustainability, 5(11): 931-938. google scholar
• Chung, S. (2014). Environmental Regulation and Foreign Direct Investment: Evidence from South Korea. Journal of DevelopmentEcononics, 108, 222-236. google scholar
• Copeland, B. R. and Taylor, M. S. (1995). Trade and the Environment: A Partial Synthesis. American Journal of Agricultural Economics, 77(3): 765-771. google scholar
• Çoban, A. (2004). Çok Uluslu Şirketler Ekolojik Zarar İlişkisinin Ekonomi-Politiği. In M.C. Marin ve U. Yıldırım (eds), Çevre Sorunlarına Çağdaş Yaklaşımlar: Ekolojik, Ekonomik, Politik ve Yönetsel Perspektifler (pp 1-27). Beta Yayınevi. google scholar
• De Beule, F., Schoubben, F., & Struyfs, K. (2022). The pollution haven effect and investment leakage: The case of the EU-ETS. Economics Letters, 215, 110536. https://doi.org/10.1016/j.econlet.2022.110536 google scholar
• Demena, B. A. & Afesorgbor, S. K. (2020). The effect of FDI on Environmental Emissions: Evidence from a Meta-Analysis. Energy Policy, 138: 111-192. google scholar
• Doğan, A., & Pata, U. K. (2022). The role of ICT, R&D spending and renewable energy consumption on environmental quality: testing the lcc hypothesis For G7 countries. Journal of Cleaner Production, 380, 135038 google scholar
• Dunning, J. H. (1979). Explaining changing patterns of international production: In defence of eclectic theory. Oxford Bulletin of Economics and Statistics, 41(4), 269–295. https://doi.org/10.1111/j.1468-0084.1979. mp41004003.x google scholar
• Eskeland, G. S., Harrison, A. E. (2003). Moving to Greener Pastures? Multinationals and the Pollution Haven Hypothesis. Journal of Development Economy, 70 (1): 1-23. google scholar
• Famanta, M., Randhawa, A. A., & Yajing, J. (2024). The impact of green FDI on environmental quality in less developed countries: A case study of load capacity factor based on PCSE and FGLS techniques. Heliyon, 10(7). google scholar
• Ganda, F. (2024). Analysing the impacts of FDI, material footprint and ICT on the load capacity factor in sub-saharan African countries. Frontiers in Environmental Science, 12, 1419307. google scholar
• Global Footprint Network (2025). Glossary, https://www.footprintnetwork.org/resources/glossary/(12/06/2025 google scholar
• Güler, İ., Naimoğlu, M., Şimşek, O., Adalı, Z., & Özbek, S. (2025). Analyzing the impact of economic growth and FDI on sustainable development goals in China: insights from ecological footprints and load capacity factors. Frontiers in Environmental Science, 13, 1513158.google scholar
• Grossman, G.M. & Krueger, A.B. (1991). Environmental Impacts of A North American Free Trade Agreement. National Bureau Economic Research, 39(14): 1-57.google scholar
• Kartal, M. T., Gokceli, E., Yildirim, H. H., & Calis, N. (2025). A new approach to analyze determinants of environmental quality: evidence from E7 countries by panel approaches. International Journal of Sustainable Development & World Ecology, 32(4), 428-445. google scholar
• Latif, N., & Faridi, M. Z. (2023). Examining the impact of financial development on load capacity factor (LCF): System GMM analysis for Asian economies. Frontiers in Energy Research 10: 1063212. google scholar
• Leonard, H. J. (1988). Pollution and the Struggle for the World Product: Multinational Corporations, Environment and International Comparative Advantage, Cambridge University Press, Cambridge, https://books.google.com.tr/ google scholar
• Letchumanan, R., & Kodama, F. (2000). Reconciling the Conflict between the Pollution Haven Hypothesis and an Emerging Trajectory of International Technology Transfer. Research Policy, 29(1): 59-79.google scholar
• Liu Y, Hao, Y., & Gao, Y. (2017). The environmental consequences of domestic and foreign investment: evidence from China. Energ Policy, 108:271–280. doi: 10.1016/j.enpol.2017.05.055. google scholar
• Lu, H., & Huang, H. (2008). Dirty Industry Migration Globally and to China-an Empirical Study. International Review of Business Research Papers, 4(2), 176-202. google scholar
• Ma, N., Sun, W., Wang, Z., Li, H., Ma, X., & Sun, H. (2023). The effects of different forms of FDI on the carbon emissions of multinational enterprises: A complex network approach. Energy Policy, 181, 113731. google scholar
• Panayotou, T. (1993). Empirical Tests and Policy Analysis of Environmental Degradation at Different Stages of Economic Development. ILO Technology and Employment Programme Working Paper, WP238 (1993) google scholar
• Pata, U. K. (2021). Do renewable energy and health expenditures improve load capacity factor in the USA and Japan? A new approach to environmental issues. The European Journal of Health Economics, 22(9), 1427–1439. https://doi.org/10.1007/s10198-021-01321-0google scholar
• Pata, U. K., & Kartal, M. T. (2023). Impact of nuclear and renewable energy sources on environment quality: Testing the EKC and LCC hypotheses for South Korea. Nuclear Engineering and Technology, 55(2), 587–594. https://doi.org/10.1016/j.net.2022.10.027 google scholar
• Padhan, L., & Bhat, S. (2024). Nexus between Foreign Direct Investment and Ecological Footprint in BRICS and Next-11: the Moderating role of Green Innovation. Management of Environmental Quality: An International Journal, 35(4): 799-817. google scholar
• Pavlović, A., Njegovan, M., Ivanišević, A., Radišić, M., Takači, A., Lošonc, A., et al. (2021). The impact of foreign direct investments and economic growth on environmental degradation: the case of the Balkans. Energies, 14 (3), 566. doi:10.3390/en14030566 google scholar
• Rahman, Z. U., Chongbo, W., & Ahmad, M. (2019). An (a)symmetric analysis of the pollution haven hypothesis in the context of Pakistan: a non-linear approach. Carbon Management. 10 (3), 227–239. doi:10.1080/17583004.2019.1577179 google scholar
• Ren, S., Yuan, B., Ma, X., & Chen, X. (2014). International trade, fdi and embodied CO2 emissions: a case study of China’s industrial sectors. China Economic Review, 28, 123–134. https://doi.org/10.1016/j.chieco.2014.01.003google scholar
• Roy, A. (2024). The impact of foreign direct investment, renewable and non-renewable energy consumption, and natural resources on ecological footprint: an Indian perspective. International Journal of Energy Sector Management, 18(1), 141-161. google scholar
• Saint Akadiri, S., Ozkan, O., & Alola, A. A. (2025). Investigating the determinants of load capacity factor in Nigeria: An asymmetric quantile approach on urbanization, economic growth, FDI, and resource dependency. Resources Policy, 104, 105586. google scholar
• Saleem, S. H., Ahmed, D. H., & Samour, A. (2024). Examining the impact of external debt, natural resources, foreign direct investment, and economic growth on ecological sustainability in Brazil. Sustainability, 16(3), 1037. google scholar
• Scrieciu, Ş. (2015). Measuring Environmental Action and Economic Performance in Developing Countries. GGKP Research Committee on Trade and Competitiveness. Working Pape 01/2015. https://discovery.ucl.ac.uk/id/eprint/10073124/ google scholar
• Shahbaz M, Nasreen S, Ahmed K, & Hammoudeh S. (2017). Trade openness-carbon emissions nexus: the importance of turning points of trade openness for country panels. Energy Economics, 61:221–232. doi: 10.1016/j.eneco.2016.11.008. google scholar
• Siche, R., Pereira, L., Agostinho, F., and Ortega, E. (2010). Convergence of Ecological Footprint and Emergy Analysis as a Sustainability Indicator of Countries: Peru as Case Study. Communications in Nonlinear Science and Numerical Simulation, 15 (10), 3182–3192. doi:10.1016/j.cnsns.2009.10.027 google scholar
• Soto, G. H., & Edeh, J. (2025). Assessing the foreign direct investment-load capacity factor relationship in Spain: can FDI contribute to environmental quality?. Environment, Development and Sustainability, 27(7), 16181-16203. google scholar
• Teng, J. Z., Khan, M. K., Khan, M. I., Chishti, M. Z., & Khan, M. O. (2021). Effect of foreign direct investment on CO2 emission with the role of globalization, institutional quality with pooled mean group panel ARDL. Environmental Science and Pollution Research, 28(5), 5271–5282. https:// doi.org/ 10. 1007/ s11356- 020- 10823-y google scholar
• The Economist (1992). Let Them Eat Pollution, February 8, Issue: 7745/82. google scholar
• Topal, S. (2024). LCC Hipotezi Çerçevesinde Türkiye’de Kirlilik Sığınağı Ve Kirlilik Hale Hipotezlerinin Sınanması. Uluslararası Yönetim İktisat ve İşletme Dergisi, 20(2), 418-436. google scholar
• Udemba, E. N. (2021). Nexus of Ecological Footprint and Foreign Direct Investment Pattern in Carbon Neutrality: New Insight for United Arab Emirates (UAE). Environmental Science and Pollution Research, 28: 34367-34385. google scholar
• Ulucak, R., & Apergis, N. (2018). Does convergence really matter for the environment? An application based on club convergence and on the ecological footprint concept for the EU countries. Environmental Science & Policy, 80, 21-27. google scholar
• Ullah, S., Luo, R., Adebayo, T. S., & Kartal, M. T. (2024). Paving the ways toward sustainable development: the asymmetric effect of economic complexity, renewable electricity, and foreign direct investment on the environmental sustainability in BRICS-T. Environment, Development and Sustainability, 26(4), 9115-9139. google scholar
• Van Tran, H., Tran, A.V., Bui Hoang, N. and Mai, T.N.H. (2024). Asymmetric Effects of Foreign Direct Investment and Globalization on Ecological Footprint in Indonesia. PLoS ONE, 19(1): 0297046. google scholar
• Wang, H., Dong, C., & Liu, Y. (2019). Beijing direct investment to its neighbors: A pollution haven or pollution halo effect? Journal of Cleaner Production, 239, 118062. https://doi.org/10.1016/j.jclepro.2019.118062google scholar
• WWF (2018). “Living planet report - 2018,” in WWF gland Switzerland. Editors M. Aiming Higher Grooten, and A. REA Available at: https://c402277sslcf1rackcdncom/publications/1187/files/original/LPR2018_Full_Report_Spreadspdf. google scholar
• Yandle, B., Vijayaraghavan, M., & Bhattarai, M. (2004). The environmental Kuznets curve. A Primer, PERC Research Study, 2(1), 1-38. google scholar
• Yerdelen Tatoğlu, F. (2012). İleri panel veri analizi. Beta Basım AŞ. google scholar
• Yerdelen Tatoğlu, F. (2020). Panel zaman serileri analizi. Beta Basım AŞ. google scholar
• Yıldırım M, Destek MA, & Manga M. 2024. Foreign investments and load capacity factor in BRICS: the moderating role of environmental policy stringency. Environmental Science and Pollution Research, 31(7):11228–11242. doi: 10.1007/s11356-023-31814-9.google scholar
• Yi, J., Hou, Y., & Zhang, Z. Z. (2023). The impact of foreign direct investment (FDI) on China's manufacturing carbon emissions. Innovation and Green Development, 2(4), 100086. google scholar
• Zellner, A. (1962). An Efficient Method of Estimating Seemingly Unrelated Regressions and Tests for Aggregation Bias. Journal of the American Statistical Association, 57(298), 348–368. https://doi.org/10.2307/2281644 google scholar
• Zeng, K. and Eastin, J. (2012). Do Developing Countries Invest up? The Environmental Effects of Foreign Direct Investment from Less-developed Countries. World Development, 40(11): 2221-2233. google scholar
• Zeng, D. Z. & Zhao, L. (2009). Pollution Haven Sand Industrial Agglomeration. Journal of Environmental Economy Management, 58: 141-153. google scholar
• Zhang, C., Zhou, X., 2016. Does foreign direct investment lead to lower CO2 emissions? Evidence from a regional analysis in China. Renewable and Sustainable Energy Reviews, 58, 943–951. https://doi.org/10.1016/j.rser.2015.12.226. google scholar
• Zheng, J., Assad, U., Kamal, M. A., &Wang, H. (2024). Foreign direct investment and carbon emissions in China: “Pollution Haven” or “Pollution Halo”? Evidence from the NARDL model. Journal of Environmental Planning and Management, 67(3), 662–687. doi:10.1080/09640568.2022.2130194 google scholar
• Zhu, H., Duan, L., Guo, Y., & Yu, K. (2016). The effects of FDI, economic growth and energy consumption on carbon emissions in ASEAN-5: evidence from panel quantile regression. Economic Modelling, 58, 237-248.google scholar