The contribution of cross-border capital flow towards decarbonisation

Publication Name

Journal of Cleaner Production


This study examines the effects of greenfield foreign direct investment, mergers and acquisitions, and net foreign direct investment inflows, on carbon dioxide emissions in 68 countries from 1996 to 2018. The investigation adopts an augmented Stochastic Impacts by Regression on the Population, Affluence, and Technology (STIRPAT) framework and employs an instrumental variable approach and instrumental variable-quantile regression models for the sampled nations. Whilst several Foreign Direct Investment entry modes are shown to have varying effects, the results demonstrate that capital inflows via greenfield foreign direct investment and net foreign direct investment raise emissions in all nations, confirming the Pollution Haven Hypothesis. Also, the unrestricted inflows of capital via greenfield projects could increase environmental degradation overtime and the detrimental impact could spread to other sectors of the economy. Moreover, our study demonstrates that capital inflow through cross-border mergers and acquisitions is a significant contributor to decarbonisation throughout the analysed nations, confirming the halo hypothesis, with quantile results revealing diverse effects across national emission profiles. The results are robust to different model specifications of the independent variables and estimation methods. Based on the empirical findings, several policy implications are suggested for theory and practice on cleaner production and sustainability in the countries and multinational companies. This study recommends policy measures to regulate the inflow of polluting assets and incentives to contribute to decarbonisation solutions.

Open Access Status

This publication is not available as open access



Article Number


Funding Sponsor

Frederick Douglass Institute for African and African-American Studies, University of Rochester



Link to publisher version (DOI)