Effects of Inflation, Foreign Direct Investment, Energy Consumption, and Trade Openness on CO2 Emissions: Panel Data Analysis for Developing Countries

Year 2025, Volume: 34 Issue: 1, 71 - 85, 11.04.2025

Mehmet Emre Ünsal

https://doi.org/10.26650/siyasal.2025.34.1536959

Abstract

This study investigates the drivers of CO2 emissions in developing countries, with emphasis on the nexus role exerted by key economic variables such as inflation, FDI, energy use, and trade openness. This is a panel study covering 1990-2020 for nine developing countries: Brazil, India, Türkiye, South Africa, Indonesia, Mexico, Malaysia, Nigeria, and Pakistan. Due to heteroscedasticity detection, the method Huber-Eicker-White is used for estimation to estimate the coefficients correctly. The results indicate that FDI, energy use, and openness to trade significantly positively influence CO2 emissions. In contrast, inflation significantly influences CO2 emissions negatively. Considering that FDI, investment, energy use, and trade openness have a positive effect on CO2 emissions, governments are always encouraged to focus on energy efficiency and renewable energy transitions by offering incentives. Inversely, the negative relationship between inflation and carbon dioxide emissions indicates that using inflationary periods as an opportunity to adopt green technology.

Keywords

CO2 emissions , inflation , FDI , energy consumption , trade openness

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