Empir Econ

DOI 10.1007/s00181-017-1263-0

The impact of economic growth, population density,

and FDI inflows on CO2 emissions in BRICTS
countries: Does the Kuznets curve exist?

Mohamed Abdouli1 · Olfa Kamoun2 · Besma Hamdi1

Received: 23 April 2016 / Accepted: 23 March 2017

© Springer-Verlag GmbH Germany 2017

Abstract This study aims at examining the nonlinear influence of economic growth,
foreign direct investment, and population density on the environmental degradation
in the BRICTS countries from 1990 to 2014. All the variables were found to be sta-
tionary based on recent panel unit root tests. On fully applying both static (OLS, FE,
and RE) and dynamic (system GMM) panel data approaches, it was found that there
is a relationship between CO2 -GDP that foregrounds the Kuznets curve for individual
cases. In fact, the Kuznets curve is valid in the BRICTS countries. This validation is
strengthened through the relationship between CO2 emissions and population density,
as well as between CO2 emissions and FDI inflows. The overall results showed that the
population density and FDI inflows initially increased, which reduced the CO2 emis-
sions as the population and FDI inflows reached the threshold level, thus confirming
the FDI halo hypothesis (FDI halo). In contrast, the Kuznets curve between CO2 emis-
sions and economic growth is not valid. This implies that the increase of economic
growth impedes the environmental quality. These empirical insights are of particular
interest to policymakers as they help build sound economic and energy conservation
policies to support the environment quality.

B Mohamed Abdouli
mohamedabdouli3@gmail.com
B Olfa Kamoun
olfakamoun@yahoo.fr
B Besma Hamdi
hamdibes2014@gmail.com

1 Faculty of Economics and Management of Sfax, Sfax, Tunisia

2 Higher School of Economic and Commercial Sciences of Tunis, Tunis, Tunisia

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 M. Abdouli et al.

Keywords FDI inflows · Economic growth · Population density · Environment ·

BRICTS countries

JEL Classifications O11 · O16 · P18 · Q4 · Q55 · J11

1 Introduction

In recent decades, policymakers and academic research have been increasingly inter-
ested in the economic growth linked to the human activities and foreign direct
investment (FDI) inflows in the BRICTS countries (Brazil, Russian Federation, India,
China, Turkey and South Africa). The acceleration of economic growth and FDI
inflows caused several problems on the environmental quality (Abdouli and Ham-
mami 2016a). In addition, a rapidly increasing population leads to the surge of CO2
emissions (Xu and Lin 2015). On the other hand, the environment pollution began
to have a direct impact on the quality of human life or even became a threat to the
survival of mankind (Hitam and Borhan 2012). In this context, the links between
economic growth, FDI inflows, and environmental quality are of considerable policy-
makers’ interest (Omri et al. 2014). A large body of research explored the relationship
between urbanization, as one of the most plausible indicators of economic develop-
ment, demographic structure, and carbon dioxide emissions (Sheng and Guo 2016).
Moreover, the existing research reported mixed findings, especially about the short-
term impacts of economic growth, FDI, energy consumption, and population density
on the environmental degradation in the BRICTS countries.
In this study, these impacts are examined for the six BRICTS countries. All of these
countries have experienced a rapid increase of the environmental pollution over the past
40 years due mainly to their economic growth, FDI inflows, and energy consumption
and population density. Given the pivotal role of oil and gas in driving the world
economy and the rapid increase of the economic activity worldwide over the past
40 years, it is perhaps unsurprising that the BRICTS countries are among the highest
per capita carbon dioxide (CO2 ) country emitters (Sheng and Guo 2016).
The rapid environmental degradation in the BRICTS countries has been associated
with high rates of economic growth, FDI inflows, energy consumption, and CO2
emissions. The rates of economic growth, FDI inflows, energy consumption, and
population density in the BRICTS countries have surpassed the levels of the major
developed economies (World Bank 2014).
My motivation for this study is to give fresh evidence for the BRICTS countries
on the short-run analysis of the environmental Kuznets curve (EKC) hypothesis to
overcome the most important obstacles found in the literature. The main contribution of
this paper lies in the benefit of the adopted empirical methodology. The latter is related
to three main concerns. Firstly, there may be a threshold effect on the relationship
between CO2 emissions and economic growth, CO2 emissions, and FDI inflows, as
well as population density and CO2 emissions. Secondly, the nonlinear approach
enabled us to endogenously identify the nonlinearity of the CO2 relationship. Thirdly,
this idea is opposite to previous evidence according to which we have used new
econometric approach to point out to the existence of the EKC.

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The contribution of this paper to the empirical environmental economic litera-

ture is due to the following points: (1) this pioneering effort examines the nonlinear
influence of economic growth, FDI inflows, and population density on environmental
degradation in the BRICTS countries. (2) This study covers the period 1990–2014 for
6 BRICTS countries using the data of the global heterogeneous panel. (3) Panel unit
root tests were applied to determine the stationarity properties of the variables. (4)
Both static and dynamic panel data approaches were applied to examine the impact of
FDI, economic growth, and population density on CO2 emissions. This is an attempt
to answer the following question: How do economic growth, FDI inflows, energy con-
sumption, and population density lead to the environmental degradation in the BRICTS
countries?
The rest of the study is organized as follows: Sect. 2 gives a brief literature review.
The third section talks about the data and the methodology used in the study. Section 4
discusses the results in detail, while Sect. 5 concludes the study with some policy
implication.

2 Literature review

Although several studies dealt with the nexus between economic growth, FDI inflows,
energy consumption, population density, and CO2 emissions, this paper reviews the
results of all the studies that explored the risks of economic growth, FDI inflows, energy
consumption, and population density on environmental degradation using panel data
modeling techniques. We focus on the studies on panel data models since they are
very close to our study and provide some insights of the impact of four factors on the
CO2 emissions.
The impact of other macroeconomic variables on CO2 emissions has also been
investigated by many researchers. For instance, for the impact of economic growth,
FDI inflows, and energy consumption and population intensity several empirical stud-
ies provide many interesting insights. In this context, over the period 1990–2000, Aliyu
(2005) tested the relationship between FDI inflows and environment for OECD (Orga-
nization for Economic Co-operation and Development) and non-OECD countries
using fixed and random effect models. The results showed that foreign outflows lead to
environmental degradation(pollution haven hypothesis (PHH)]. Iwejingi (2011) inves-
tigated the impact of population growth on environmental degradation in Nigeria. Their
empirical result identified rapid human population growth as major environmental
problem. Similarly, using a panel cointegration test, Zaman et al. (2011) investigated
the impact of population growth on environmental degradation in South Asia over the
period 1985–2009. The results of the study showed that population growth impedes
environmental quality in South Asia.
In the same vein, Menz and Welsch (2012) investigated the relationship between
emissions of carbon dioxide and the ongoing process of demographic transition in
the OECD countries. They found that, between 1960 and 2005, the shifts in both
the age and the cohort composition contributed to the rise of carbon emissions in
the OECD countries. Piaggio and Padilla (2012) collected data for 31 countries (28
OECD, Brazil, China, and India) to examine the relationship between CO2 emissions

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and economic growth for the time range 1950–2006, using cointegration test. They
found that economic activity increases the CO2 emissions for all the countries. In
India, Lakshmana (2013) analyzed the impact of population and development on the
environment. The result showed that the rapid population growth and the continued
economic development caused serious environmental damage in India. Furthermore,
Lee (2013) collected data for 19 nations of the G20 to examine the impact of FDI on
other variables using panel cointegration test. They reported that FDI has played an
important role in economic growth for the G20, whereas it has had negative impact
on the increase of CO2 emissions in the economies. Similarly, Shahbaz et al. (2013)
investigated the relationship between economic growth, energy consumption, financial
development, trade openness, and CO2 emissions for the years 1975–2011 in Indonesia
using the ARDL and VECM approaches. The empirical results indicated that economic
growth and energy consumption increase CO2 emissions.
In another study, Shahbaz and Leitão (2013) collected Portuguese data to investigate
the causal relationship between economic growth, energy consumption, trade open-
ness, and carbon dioxide emissions for the period 1970–2009 using ARMA model.
The empirical evidence indicated that economic growth is directly linked to CO2 emis-
sions. Moreover, energy consumption and international trade have a positive impact on
carbon dioxide emissions. Therefore, the results provided evidence for the existence
of the EKC.
Using Granger causality tests and variance decomposition, Ben Mbarek et al. (2014)
investigated the causal relationship between CO2 emissions, GDP, and energy inten-
sity in Tunisia over the period 1980–2010. They found that an increase of economic
growth has a positive impact on environmental quality. By using panel data for six
Gulf Cooperation Council countries for the period 1980–2013, on the other hand, Jam-
mazi and Aloui (2015) examined the link between CO2 emission, economic growth,
and energy consumption. Their results indicated that an increase of economic growth
tends to increase CO2 emissions. In addition, Dogan and Turkekul (2015) examined
the relationship between carbon dioxide (CO2 ) emissions, energy consumption, real
output, the square of real output, trade openness, urbanization, and financial devel-
opment in the USA for the period 1960–2010 using cointegration test. Their results
found that the real output leads to environmental improvements, while GDP2 increases
the levels of CO2 emissions. On their part, Tang and Tan (2015) tested the impact of
energy consumption, income, and foreign direct investment on carbon dioxide emis-
sions in Vietnam over the period 1976–2009 using cointegration and Granger causality
tests. Their findings showed that energy consumption and income positively influence
CO2 emissions, but the square of income has a negative impact on CO2 emissions in
Vietnam. This supports the EKC hypothesis which assumes that there is an inverted U-
shaped relationship between CO2 emissions and economic growth,1 in turn, foreign
direct investment decreases environmental degradation, thus confirming the pollu-
tion halo. In other words, FDI inflows adopted clean technologies to decrease CO2
emissions. On the other hand, Zakarya et al. (2015) tested the factors affecting CO2

1 On the other hand, Arouri et al. (2012) employed the cointegration methods to test the EKC hypothesis for
the 12 MENA Countries over the period 1981–2005. They found that the inverted U-shaped EKC hypothesis
is not applicable to the MENA countries.

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emissions in the BRICTS countries over the period 1990–2012 using cointegration
tests and panel Granger causality. Their results showed that the total primary energy
consumption, FDI net inflows, and GDP, are important factors that increase CO2
emission2 in the long run. In a similar way, Ohlan (2015) reexamined the impact
of population density, energy consumption, economic growth and trade openness on
CO2 emissions in India by applying an autoregressive distributed lag (ARDL) model
and a vector error-correction model (VECM) over the period 1970–2013. He found
that population density, energy consumption, and economic growth have a statistically
significant positive effect on CO2 emission.
More recently, Sheng and Guo (2016) examined the impacts of urbanization on
carbon dioxide emissions in China’s provincial-level data for the period 1995–2011
using mean group analysis, pooled mean group analysis, and dynamic fixed effect
estimation. Their findings indicated that rapid urbanization increases carbon dioxide
emissions both in the short and in the long run. In addition, Wang and Yang (2015)
analyzed the association between economic growth, energy consumption, and CO2
emissions in China for the period 1990–2012. Their results showed that the rise of
economic growth increases CO2 emissions.
Furthermore, for Tunisia, Shahbaz et al. (2014a, b) tested the environmental Kuznets
curve hypothesis for the period 1971–2010, using structural breaks and a VECM. The
obtained results found that the inverted U-shaped EKC is valid for Tunisia. On the
other hand, Leitão (2014) applied the GMM method, VEC, and Granger causality
to test the dynamic interaction between economic growth, carbon dioxide emissions,
renewable energy, and globalization for the period 1970–2010. The OLS estimator
and GMM model demonstrate that carbon dioxide emissions and renewable energy
are positively related to economic growth. This implies that the increase of renewable
energy promotes environmental quality.3
Recently, Abdouli and Hammami (2016a) have tested the impact of economic
growth, FDI inflows, trade openness, and energy consumption on environmental degra-
dation in 17 MENA countries over the period 1990–2012 using both static (OLS, FE,
and RE) and dynamic (Diff-GMM and Sys-GMM) panel data approaches. Their results
indicated that the increase of foreign direct investment, trade openness, and energy
consumption increases environmental degradation.
In contrast, Zhang and Lin (2012) have studied the effect of urbanization on energy
consumption and CO2 emissions in China over the period 1995–2010. Their results
indicated that urbanization increases CO2 emissions in China. Similarly, Shahbaz
et al. (2014a, b) investigated the relationship between economic growth, electricity
consumption, urbanization, and environmental degradation in the case of the United
Arab Emirates (UAE) over the period 1975–2011. They reported an inverted U-shaped
relationship between economic growth and CO2 emissions, i.e., economic growth ini-

2 In addition, Grimes and Kento (2003) used data from 66 less developed countries to analyze the impact
of the impact of foreign investment dependence on carbon dioxide emissions over the period 1980–1996.
They found that a heavy dependence on FDI impedes environmental quality in less developed.
3 Similarly, for the period 1990–2011, Leitão (2015) examined the relationship between energy consump-
tion and foreign direct investment (FDI) using a sample from Portugal using fixed effect (FE) and system
GMM panel data approaches. The results support that the income variables per capita and the squared
income per capita validate the EKC assumptions.

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tially raises energy emissions and reduces it after a threshold point of income per capita
(EKC exists). In addition, the relationship between urbanization and CO2 emissions
is positive. This indicates that the increase of urbanization impedes environmental
quality.
In China’s international trade, using an input–output analysis over the period
2000–2010, Ren et al. (2014) explored the impacts of FDI, trade openness, exports,
imports, and per capita income on CO2 emissions. The results suggest that FDI inflows
aggravate China’s CO2 emissions4 and that the EKC also exists. Similarly, Kasman
and Duman (2015) investigated the relationship between CO2 emissions, economic
growth, energy consumption, trade, and urbanization in the new EU member countries
over the period 1992–2010 using panel cointegration methods and panel causality tests.
The authors found the existence of an inverted U-shaped curve between real income
and carbon emissions, which supports the validity of the EKC hypothesis.5 Hence,
carbon emissions increase, stabilize, and then decrease with income.
In addition, more recently, Abdouli and Hammami (2016a) have supported the
validity of an inverted U-shaped relationship between carbon dioxide emissions and
GDP in the MENA countries as CO2 is positively impacted by GDP per capita and
negatively by the square of GDP per capita. Zhu et al. (2016) employed OLS regres-
sion (pooled and fixed effects) and the FMOLS technique to test the effects of FDI,
economic growth, and energy consumption on carbon emissions in South East Asian
Nations (ASEAN-5), including Indonesia, Malaysia, the Philippines, Singapore, and
Thailand. They found that the FDI can mitigate carbon emissions, while CO2 emis-
sions are negatively affected by economic growth and population size.
In terms of analysis using nonlinear model, a few researchers considered the exis-
tence of an inverted U-shape relationship between the environment and urbanization,6
as well as between the environment and FDI inflows. In this context, in Canada,
Lantz and Feng (2006) used an empirical analysis to explain the macroeconomic
forces underlying CO2 emissions over the period 1970–2000 using nonlinear mod-
els. The found that GDP is unrelated to CO2 , whereas there is an inverted U-shaped
relationship with both population and technology. Thus, technological and popula-
tion changes are supported over the commonly hypothesized environmental Kuznets
curve (an inverted U-shaped relationship between GDP and environmental degrada-
tion) affecting CO2 emissions. In the same vein, Martinez-Zarzoso and Maruotti (2011)
explored the impact of urbanization on CO2 emissions using data for 88 developing
countries over the period 1975–2003. They indicated that a rise of urbanization leads
to decreased CO2 emissions. This implies that environmental impacts may follow
a Kuznets curve relative to urbanization. Shahbaz and Leitão (2013) collected Por-

4 By contrast, Bao et al. (2010) investigated the link between FDI and energy emissions in 25 Chinese
provinces. These authors found that a rise in FDI leads to decreased energy emissions (the technique effect).
5 The same result is found by numerous studies for example (Suri and Chapman 1998; Dinda and Coondoo
2006; Managi and Jena 2008; Zhu et al. 2012).
6 In the same vein, other researchers considered the existence of an inverted U-shape relationship between
environmental pollution and urbanization (Ehrhardt-Martinez et al. 2002; York et al. 2003). These authors
showed that urbanization is a good proxy for modernization and therefore environmental impact should
decrease with higher shares of urban population.

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The impact of economic growth, population density, and…

tuguese data to investigate the causal relationship between economic growth, energy
consumption, trade openness, and carbon dioxide emissions for the period 1970–2009.
The empirical evidence indicated that economic growth is directly linked to CO2 emis-
sions. Moreover, energy consumption and international trade have a positive impact
on carbon dioxide emissions. In fact, the results support the existence of EKC.
On the other hand, Hitam and Borhan (2012) tested the relationship between for-
eign direct investment and environmental degradation in Malaysia over the period
1965–2010 using the nonlinear model. The results indicated that the environmental
Kuznets curve exists and foreign direct investment increases environmental degra-
dation. Shahbaz et al. (2015) examined the nonlinear correlation between FDI and
environmental degradation in high-, middle-, and low-income countries over the period
1975–2012 applying fully modified ordinary least squares (FMOLS). Their empirical
results supported the EKC hypothesis. In turn, foreign direct investment increases the
environmental degradation, thus confirming the PHH.
On the other hand, other studies concluded that FDI inflows and population den-
sity lead to environmental degradation (Kuznets curve is not valid). In this context,
Harte (2007) examined the effect of population size on the environmental problem
in under-developed and developed nations. This result showed that human popu-
lation has a positive impact on environmental degradation. This indicates that the
increase of human population impedes environmental quality. Similarly, Leitão and
Shahbaz (2013) tried to verify the existence of EKC and its relationship with eco-
nomic growth, energy consumption, and globalization in 18 countries over the period
1990–2010 using GMM system estimator. Their results provided poor evidence of the
EKC hypothesis, and that energy consumption has a positive impact on CO2 emissions
and urbanization improves environmental quality by lowering CO2 emissions, i.e., an
inverted U-shaped relationship between urbanization and CO2 emissions.
To sum up, although there seems to be an agreement on the nonlinear influence of
economic growth, FDI inflows, and population density on the environmental degrada-
tion at least, studies on BRICTS countries were limited in the sense that evidence on
economic growth, FDI inflows, and population density on environmental degradation
appeared to be mixed and inconclusive. Moreover, till now, there has been no multi-
country study that has examined the impact of economic growth, FDI inflows, and
population density on CO2 emissions in the context of the BRICTS countries. Thus,
to test the existence of the EKC between environmental degradation, economic growth,
and FDI inflows, we should incorporate population density along with other factors.
This study fills the gap in the literature and assesses the less explored link between
CO2 emissions, economic growth, population density, and energy consumption in the
BRICTS countries (Table 1).

3 Econometric methodology and data

3.1 Econometric methodology

The aim of this study is to evaluate the possibility of nonlinear impact of FDI inflows,
economic growth, and population density by incorporating energy consumption in the

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 Table 1 Summary of the existing empirical studies on the impact of economic growth, FDI inflows, and population density on CO2 emissions

Study Countries Periods Methodologies Conclusions: impact of economic

growth, FDI inflows, and population

123
density

Population density—environment studies

Lantz and Feng (2006) Canada 1970–2000 Nonlinear models Inverse U-shaped relationship
between population density and
environment
Harte (2007) Under-developed and 1950–2000 Nonlinear models Negative effect of population density
developed on environment
nations
Zaman et al. (2011) South Asia 1985–2009 Panel cointegration test Negative effect of population growth
on environment
Martinez-Zarzoso and 88 developing countries 1975–2003 STIRPAT model Inverse U-shaped relationship
Maruotti (2011) between urbanization
Menz and Welsch (2012) OECD countries 1960–2005 GMM method Positive effect of urbanization on
environment
Zhang and Lin (2012) China 1995–2010 STIRPAT model Negative effect of urbanization on
environment
Leitão and Shahbaz (2013) 18 countries 1990–2010 GMM system Inverse U-shaped relationship
between urbanization and
environment
Shahbaz et al. (2014a, b) United Arab Emirates 1975–2011 ARDL and VECM Negative effect of urbanization on
environment
Ohlan (2015) India 1970–2013 (ARDL) model and VECM Negative effect of urbanization on
model environment
Sheng and Guo (2016) China 1995–2011 Mean group, Pooled mean Negative effect of urbanization on
group, dynamic fixed effect environment
estimation
M. Abdouli et al.
 Table 1 continued

Study Countries Periods Methodologies Conclusions: impact of economic

growth, FDI inflows, and population
density

FDI inflows—environment studies

Lantz and Feng (2006) Canada 1970–2000 Nonlinear models Inverse U-shaped relationship
between technology and
environment
Hitam and Borhan (2012) Malaysia 1965–2010 Nonlinear model Environmental Kuznets curve exists
and foreign direct investment
increases environmental
degradation.
Lee (2013) 19 nations of the G20 1971–2009 Panel cointegration test Negative effect of FDI inflows on
environment
Ren et al. (2014) China 2000–2010 GMM estimation method Negative effect of FDI inflows on
environment
The impact of economic growth, population density, and…

Shahbaz et al. (2015)
Zakarya et al. (2015)
Abdouli and Hammami
(2016a)
Economic growth—environment studies
Lantz and Feng (2006)
Piaggio and Padilla (2012)
High-, middle-, and 1975–2012 FMOLS Negative effect of FDI inflows on
low-income countries environment
BRICS countries 1990–2012 Cointegration tests and panel Negative effect of FDI inflows on
Granger causality environment
17 MENA countries 1990–2012 Static (OLS, FE, and RE) Negative effect of FDI inflows on
Dynamic (Diff-GMM and environment
Sys-GMM)
Canada 1970–2000 Nonlinear models Positive and insignificant impact of
GDP on environment
31 countries 1950–2006 Cointegration test Negative and significant impact of
GDP on environment

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 Table 1 continued

Study Countries Periods Methodologies Conclusions: impact of economic

growth, FDI inflows, and population

123
density

Shahbaz et al. (2013) Indonesia 1975–2011 ARDL and VECM approach Negative and significant impact of
GDP on environment
Shahbaz and Leitão (2013) Portugal 1970–2009 OLS and ARMA model Inverse U-shaped relationship
between economic growth and
environment
Ben Mbarek et al. (2014) Tunisia 1980–2010 Granger causality test Negative and significant impact of
GDP on environment
Shahbaz et al. (2014a, b) Tunisia 1971–2010 ARDL bounds testing and Inverse U-shaped relationship
VECM Granger causality between economic growth and
environment
Leitão (2014) Portugal 1970–2010 OLS estimator, GMM Positive and significant impact of
method, VEC model, and GDP on environment
Granger causality test
Leitão (2015) Portugal 1990–2011 Fixed effect (FE) and System Inverse U-shaped relationship
GMM panel between economic growth and
environment
Jammazi and Aloui (2015) 6 Gulf Cooperation 1980–2013 Windowed cross-wavelet Negative and significant impact of
Council countries (WWCC) approach GDP on environment
Dogan and Turkekul (2015) USA 1960–2010 Cointegration test Inverse U-shaped relationship
between economic growth and
environment
M. Abdouli et al.
 Table 1 continued

Study Countries Periods Methodologies Conclusions: impact of economic

growth, FDI inflows, and population
density

Tang and Tan (2015) Vietnam 1976–2009 Cointegration and Granger Inverse U-shaped relationship
causality tests between economic growth and
environment
Wang and Yang (2015) China 1990–2012 Cointegration test Negative and significant impact of
GDP on environment
Kasman and Duman (2015) EU member and 1992–2010 Panel cointegration methods Inverted U-shaped curve between
candidate countries and panel causality tests real income and carbon emissions
Abdouli and Hammami 17 MENA countries 1990–2012 Static (OLS, FE, and RE) Inverted U-shaped relationship
(2016a) Dynamic (Diff-GMM and between carbon dioxide emissions
Sys-GMM) and GD
The impact of economic growth, population density, and…

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 M. Abdouli et al.

measures of the environmental degradation in case of BRICTS countries. However,

various approaches, related to the nonlinear model, are due to the existence of an
indirect relationship between these variables used in previous literature. For exam-
ple, previous studies have used single equation models to determine the relationships
between economic growth, FDI inflows, and CO2 emissions with other variables such
as energy consumption (see, Shahbaz et al. 2015; Abdouli and Hammami 2016a).
Later on, other studies augmented the single equation model by incorporating pop-
ulation density as a determinant of CO2 emissions (Lantz and Feng 2006; Hitam and
Borhan 2012).
Following these studies, we have integrated the population density variable in the
GDP-FDI-CO2 links to test the validity of environmental Kuznets curve in the case of
BRICTS countries. So, the estimable equation is modeled as follows:

CO2 = f (GDP, FDI, PD, EN) (1)

We have transformed all series by natural logarithm to attain reliable and consistent
results (Shahbaz et al. 2013). The estimable equation is modeled as follows:

Ln(CO2it ) = α0 + α1i Ln(GDPit ) + α2i Ln (FDIit )

+ α3i ln (PD) + α4i Ln (ENit ) + εi,t (2)

We have also included squared terms of economic growth, FDI inflows, and pop-
ulation density, i.e., lnGDPt 2 , LnFDIt 2 , LnPDt 2 to check whether the nonlinear
relationship between economic growth, FDI inflows, population density, and CO2
emissions is inverted U-shaped or not. The logic behind this argument is that eco-
nomic growth, FDI inflows, and population density care less about the environment at
the initial stages of growth, whereas once economy is matured, then economic growth,
FDI inflows, and population density improve environmental quality by issuing loans
to environmentally friendly projects to sustain local production and consequently eco-
nomic growth. The empirical equation is formulated as follows:
   
Ln(CO2it ) = α0 + α1i Ln(GDPit ) + α2i Ln GDPit2 + α3i Ln (FDIit )+ α4i Ln FDI2
 
+ α5i ln (PD) + α6i ln PD2 + α7i Ln (ENit ) + εi,t (3)

In this study, the above framework is employed to test for the existence of an EKC
relationship between GDP per capita and CO2 emissions within the six BRICTS
countries including Brazil, the Russian Federation, India, China, Turkey, and South
Africa for 1990–2014. In this context, the inverted U-shaped relationship between
economic growth, CO2 emissions, FDI inflows, CO2 emissions, population density,
and CO2 emissions exists if α1 > 0, α3 > 0 and α5 > 0, while α2 < 0, α4 < 0 and
α6 < 0 (Abdouli and Hammami 2016a; Lantz and Feng 2006; Shahbaz et al. 2015).
The economic activity is stimulated by energy consumption that resultantly increases
CO2 emissions. This makes us expect α7 > 0 (Mercan and Karakay 2015).

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3.2 Data and descriptive statistics

3.2.1 Data

Our study covers 6 countries selected on the basis of data availability. These countries
are: Brazil, the Russian Federation, India, China, Turkey, and South Africa over the
period 1990–2014. Data on CO2 emissions (in metric tons) and energy consumption
(in kilotons of oil equivalent), as well as on FDI ($ USD) and GDP ($ USD), population
density (people per sq. km of land area), were collected from the World Development
Indicators published by the World Bank (2014). To estimate our models, we divided
the variables by the population to get the variables in per capita terms. Lastly, all the
per capita series were converted by a logarithmic transformation.

3.2.2 Descriptive statistics

The descriptive statistics of the different variables for the BRICTS countries are pre-
sented in Table 2. The highest means of per capita emissions and of per capita energy
consumption are in the Russian Federation, whereas the highest means of GDP per
capita are in Turkey, FDI inflows in China, and population density in India.
Then, the lowest means of per capital CO2 emissions, per capita GDP, FDI inflows,
and per capita energy consumption are in India. Additionally, China, Brazil, and Turkey
have the highest volatility (defined by the standard deviation) in per capita CO2 emis-
sions, FDI inflows, and population density. Similarly, the highest per capita GDP
and per capita energy consumption are in the Russian Federation, while the lowest
volatility of per capita CO2 emissions, GDP per capita, FDI inflows, and per capita
energy consumption is in India, respectively. On the other hand, the highest coefficient
of variation of per capita GDP, per capita energy consumption, and per capita CO2
emissions is measured by the standard deviation-to-mean ratio of China. In addition,
South Africa has the highest coefficient of variation of per capita FDI inflows and of
population density. On the other hand, the lowest variation coefficient of per capita
CO2 emissions and of per capita energy consumption is in South Africa. However,
the lowest coefficient of variation of per capita GDP and per capita FDI inflows is for
India. Finally, the lowest coefficient of variation of the population density is in the
Russian Federation.
Overall, for the BRICTS countries, the highest means and volatility are for per
capita GDP. On the other hand, the lowest means and volatility are for per capita
FDI inflows. Finally, the population density has the highest coefficient of variation,
whereas the lowest variation coefficient is of the per capita GDP.

4 Estimation procedure

In this study, both the static and dynamic panel estimation techniques are applied by
using the OLS, fixed, and random effects for a static panel and the generalized method
of moments (GMM) in order to estimate our dynamic panel data model, which also
leads to a lagged level of environment. The static panel data may have a group effect,

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Table 2 Summary statistics (before taking logarithm) for the 1990–2014 period

Country names CO2 GDP FDI PD EN

China Mean 4.087 1679.019 3.671 135.1074 1272.660

SD 1.840 1053.855 1.251 7.33086 527.497
CV 0.450 0.627 0.340 0.054 0.414
Russian Federation Mean 11.754 5056.921 1.762 8.887 4730.825
SD 1.182 1285.126 1.343 0.143 539.780
CV 0.100 0.254 0.762 0.016 0.114
India Mean 1.231 697.568 1.098 365.755 473.022
SD 0.316 0.867 0.0267 44.308 91.323
CV 0.257 0.001 0.024 0.121 0.193
Brazil Mean 1.828 4723.701 2.339 21.520 1235.331
SD 0.266 649.7684 1.440 2.093 291.7075
CV 0.145 0.137 0.615 0.097 0.236
South Africa Mean 8.855 5285.307 1.300 36.963 2643.028
SD 0.473 539.5041 1.376 4.742 136.252
CV 0.053 0.102 1.058 0.128 0.051
Turkey Mean 3.495 6599.867 1.187 84.448 1233.018
SD 0.631 1258.466 1.001 8.746 205.821
CV 0.180 0.190 0.843 0.103 0.166
Panels Mean 5.208 4007.064 1.893 108.780 1931.314
SD 3.948 2290.449 1.510 124.315 1452.334
CV 0.758 0.571 0.797 1.142 0.751

SD indicates standard deviation, CO2 indicates per capita carbon dioxide emissions, GDP indicates per
capita economic growth, FDI indicates FDI inflows per capita, ENC indicates per capita energy con-
sumption, PD indicates population density, CV indicates the coefficients of variation (SD-to-mean ratio),
respectively

a time effect, or both. These effects are either fixed or random. A fixed effect model
assumes differences in intercepts across groups or time periods, whereas a random
effect model explores differences in the error variances. The Hausman specification
test is used to test whether a fixed or a random effect model is appropriate. The GMM
system estimator (Sys-GMM) includes not only the previous instruments but also the
lagged values of the dependent variable (Blundell and Bond 1998). It helps solve
the endogeneity problem arising from the potential correlation between the regressor
and the error term in dynamic panel data models (Abdouli and Hammami 2015). It
also enables to deal with omitted dynamics in static panel data models owing to the
ignorance of the impacts of the lagged values of the dependent variable (Bond 2002).

4.1 Panel unit root tests

Testing the unit roots on time series data has become one of the important tests among
economists, especially econometricians, though testing the unit roots on panel data is

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very recent. Panel unit root tests have become popular among researchers in economics
dealing with panel data structures because they are much more powerful compared to
the unit root tests for individual time series. Among the different panel unit root tests
developed in the literature, Levin et al. (LLC) (2002) and Im et al. (IPS) (2003) are
the most popular. Both tests are based on the ADF principle. However, LLC assumes
homogeneity in the dynamics of the autoregressive coefficients for all the panel mem-
bers. In contrast, the IPS is more general in the sense that it allows for heterogeneity in
these dynamics. It is particularly reasonable to allow for such heterogeneity in choos-
ing the lag length in ADF tests when imposing a uniform lag length is not appropriate.
In addition, slope heterogeneity is more reasonable in the case where cross-country
data are used. In this case, heterogeneity arises because of the differences in the eco-
nomic conditions and the degree of development in each country. Levin et al. (2002)
consider the following basic ADF specification:


pi
Yi,t = αi + βi Yi,t−1 + μi, j Yi,t− j + εi,t (4)
j=1

where Yt (i = 1, 2, . . ., N ; t = 1, 2, . . . , T ) is the series for panel member (country)

i over period t, pi is the number of lags in the ADF regression, and the error terms
εi,t are a white-noise disturbance with a variance of σi2 . Both βi and the lag order p
in Eq. (4) are allowed to vary across sections (countries). Hence, they assumed

H0 : βi = 0
H A : βi < 0

where the alternative hypothesis corresponds to Yi,t being stationary.

According to the LLC test, compared to the single equation in the augmented
Dickey–Fuller test, the panel method sensibly raises power in finite samples.
Accordingly, Levin et al. (2002) considered

H0 : β1 = β2 = · · · = β = 0
H A : β1 = β2 = · · · = β < 0
 
The test statistics is tβ = β̂ , β̂ is the OLS estimate of β in Eq. (4), and σ β̂ is its
σ (β̂)
standard error.
Im et al. (2003) proposed a testing procedure based on the mean group approach
and also on the augmented Dickey–Fuller regression presented by Eq. (4). By contrast,
the null and alternative hypotheses are not similar to the LLC test, where the rejection
of the null hypothesis involves that all the series are stationary. We now have:

H0 : β1 = β2 = · · · = β = 0; versus H1 : Some but not necessarily all β < 0

In statistics with and without trend, the IPS test statistic is calculated as the average
of the individual t-bar statistics for testing the null hypothesis of a unit root for all the
individuals (βi = 0) as follows:

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Table 3 Results of the panel unit root tests

LLC test IPS test

t-stat p Value t-stat p value

Log(CO2 ) −12.7703* (0.0000) −7.62496* (0.0000)

Log(GDP) −5.82035* (0.0000) −4.17231* (0.0000)
Log(FDI) −1.61267* (0.0534) −2.26264** (0.0118)
Log(PD) −68028.2*** (0.0000) −32487.2* (0.0000)
Log(EN) −25.6708* (0.0000) −12.6913* (0.0000)

* Significant at the 1% level.

** Significant at the 5% level.
*** Significant at the 10% level

N
tβ i
t¯ = i=t
(5)
N
where t is the ADF statistics from individual panel members; N is the number of
individuals. Using Monte Carlo simulations, IPS shows that t-bar (t¯) is normally
distributed under the null hypothesis, and outperforms M-bar in small samples. They
then use estimates of its mean and variance to convert (t¯) into a standard normal z-bar
( Z̄ ) statistics so that conventional critical values can be used to evaluate its significance.
The ( Z̄ ) test statistics is defined as:
√
N (t¯ − E[t¯|β i = 0])
Z̄ = √ → N (0, 1) (6)
V ar [t¯|β i = 0]
   
where t¯ is as defined before; E t¯| βi = 0 and Var t¯| βi = 0 are the mean and variance
of tit obtained from the Monte Carlo simulations with i = 1, 2, . . . , n.
The LLC and IPS unit root tests are used in this paper to test for the stationarity of
the panel data obtained for the BRICTS countries.
We begin our analysis with the implementation of the panel unit root tests. In
panel data analysis, the panel unit root test must be taken first in order to identify the
stationarity properties of the relevant variables. In this study, we choose two panel unit
root tests, Levin et al. (2002) and Im et al. (IPS) (2003). The null hypothesis of the
above two unit root tests is that there is a unit root (i.e., the variables are nonstationary),
whereas the alternative hypothesis states that no unit root exists in the series (i.e., the
variables are stationary).
Table 3 shows the results of panel unit root tests for the levels of the variables. It
can be seen that all the variables in level are statistically significant under the LLC
and IPS tests, which indicates that all the variables are integrated of order zero, I (0).

4.2 Results of static panel estimations

To determine the influence of economic growth, FDI inflows, population density,

and energy consumption on environmental degradation in the BRICTS countries, we

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have considered a set of static panel estimation techniques including cross-sectional

ordinary least squares (OLS), and fixed and random effect models.
The results from the estimated model are presented in Table 4, for OLS and FE
results. The empirical results for Eq. (3) are also presented in Table 4, which shows that
economic growth has a positive and significant impact on the per capita CO2 emissions
for China, India, Brazil, South Africa, and Turkey. This implies that a 1% increase in
per capita GDP increases CO2 emissions by around 25%. For the Russian Federation,
CO2 emissions are negatively affected by economic growth. This implies that a 1% rise
in economic growth decreases CO2 emissions by 4.7%. These results are in line with
those of Lakshmana (2013), Ben Mbarek et al. (2014), and Jammazi and Aloui (2015)
who found that economic growth impedes the environmental quality by increasing CO2
emissions in the case of India, Tunisia, and six Gulf Cooperation Council countries.
This result is also in line with those of Saboori et al. (2011), Seetanah and Vinesh
(2012), Ahmed and Long (2012) who reported that economic growth decreases CO2
emissions in Malaysia, Mauritius, and Pakistan.
The square of GDP has a significantly negative effect. This provides evidence sup-
porting the inverted U relationship between economic growth and CO2 emissions.
This implies that economic growth initially increases and then reduces CO2 emis-
sions as economic growth reaches the threshold level in China, India, Brazil, South
Africa, and Turkey, respectively. This finding is consistent with that of Leitão and
Shahbaz (2013) and Abdouli and Hammami (2016a) for the 17 MENA countries,
respectively.
The nonlinear relationship between FDI inflows, population density, and CO2 emis-
sions is shaped like an inverted U. In fact, there is an inverted U-shaped relationship
between CO2 emissions and the population density for China and Brazil, and a U-
shaped relationship between CO2 emissions and FDI inflows in China and the Russian
Federation. The former result may imply that population growth, while tending at first
to increase CO2 emissions in order to supply the needed goods and services in the
economy, eventually forces CO2 emissions to decrease through increased environmen-
tal conservation pressures (Lantz and Feng 2006). Furthermore, the latter result may
imply that FDI inflows have shifted from enhancing more environmentally friendly
production techniques to encouraging CO2 emission and enhancing production tech-
niques (Shafik 1994; Lantz and Feng 2006). Similarly, Shahbaz et al. (2015) found that
the linear and nonlinear terms of FDI are negatively linked to CO2 emissions, which
supports the PHH. This implies that foreign investors use better management prac-
tices and advanced technology, resulting in cleaner environment in the host countries,
which validates the FDI halo.
On the other hand, in India, FDI inflows, population density, and environmen-
tal degradation are found to be positively related, as represented by both the linear
and nonlinear terms of FDI and population density. This implies that the increase of
FDI inflows and population density has reduced CO2 emissions in India. This also
explains that the latter applies strict environmental regulations to attract more FDI
and encourage population to discover new techniques which are more respectful to
the environment. These results support the findings of Zhang and Lin (2012) and
Ren et al. (2014) that FDI and population density increase environmental pollution in
China.

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Regarding the population variable, it was found that population growth has a sig-
nificant impact on CO2 emissions for the countries, except for the Russian Federation
and Turkey, where it has an insignificant impact. For China, Brazil, and South Africa,
there is a positive significant impact. A 1% increase of the population density increases
environmental degradation by 0.25%. This means that these countries apply weak envi-
ronmental regulations to attract FDI inflows, as well as population density, which do
not respect the environmental regulation. This result is consistent with the findings
of Zhang and Lin (2012) and Sheng and Guo (2016) for China and Shahbaz et al.
(2014a, b) for the United Arab Emirates.
For India, environmental degradation is negatively affected by the population
growth. A coefficient of 8.43 indicates an increase of the per capita CO2 emissions by
8.43%, when there is a 1% increase in the population growth. This result is consistent
with the findings of Harte (2007) for the under-developed and over-developed nations
and Iwejingi (2011) for Nigeria.
Finally, the coefficient of the per capita energy consumption has a positive and
significant impact for all countries. The positive effects of energy consumption impede
the environmental quality. Per capita CO2 emissions are elastic compared to the per
capita energy consumption. Hence, a 1% increase of the use of energy increases the
environmental degradation by 1.24% for China. This result is consistent with the
findings of Soytas et al. (2007) for six countries; Wang et al. (2011) for China; Arouri
et al. (2012) for 12 Middle East and North African Countries; and Zakarya et al. (2015)
for the BRICTS countries.
The results of the static panel regression are presented in Table 4. To choose between
FE and RE models, we use the Hausman specification test to examine the null hypothe-
sis according to which the random effects are consistent and efficient. If this hypothesis
is rejected, then the estimation results provided by the FE model are more robust
(Abdouli and Hammami 2016a).
The Hausman specification test rejects the null hypothesis of the appropriateness
of the RE model. In this case, the results of the FE model are more appropriate than
those of the RE model.
In the FE model, the R-square value is 0.89, which explains that the relationship
between the CO2 emissions and all explanatory variables is strong. As expected,
economic growth and energy consumption are found to have positive and significant
impacts on environmental quality in the BRICTS countries, while that of FDI inflows
and population growth is negative.
Accordingly, we can find that economic growth and the increase of energy con-
sumption impede the environmental quality. A 1% increase of per capita GDP as well
as of energy consumption increases the per capita CO2 emissions by 0.72 and 0.29%,
respectively.
The estimated coefficient of the squared terms of the GDP is insignificant. This
result provides poor evidence of the EKC hypothesis, which implies that economic
growth initially increases and then reduces CO2 emissions as economic growth reaches
the threshold level. This finding is consistent with those of Leitão and Shahbaz (2013)
for 18 countries and Abdouli and Hammami (2016a) for 17 MENA countries.
We also noticed that FDI inflows and population density have a negative and statis-
tically significant impact on CO2 emissions at 1 and 5% levels. The magnitude of 0.88

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 Table 4 Results of OLS and fixed effect

Explanatory variables Dependent variable: C O2 emissions (C O2 )

Intercept GDP GDP2 FDI FDI2 PD PD2 EN

China 6.282 (0.124) 15.682** (0.041) −7.061* (0.004) 7.615*** (0.064) −0.847*** (0.090) 0.258* (0.003) −0.648** (0.026) 1.245* (0.000)
Russian Federation −0.054 (0.969) −4.656** (0.018) 2.247** (0.024) 0.628** (0.029) −0.117* (0.001) −7.963 (0.222) −1.061 (0.284) 1.286* (0.000)
India 19.67 (0.135) 7.383*** (0.057) −3.486*** (0.060) −2.848 (0.158) 1.251* (0.005) −8.435* (0.003) −12.499 (0.219) 0.694** (0.034)
Brazil 70.253* (0.005) 25.552* (0.006) −11.81* (0.008) 2.271 (0.398) −0.402 (0.425) 51.486* (0.008) −62.456* (0.007) 0.0245 (0.513)
South Africa 27.168*** (0.079) 6.408* (0.002) −3.368*** (0.074) −1.618 (0.368) 0.152 (0.571) 5.988** (0.030) 12.539 (0.135) 0.858* (0.002)
Turkey 24.095* (0.009) 6.789** (0.035) −3.270** (0.039) −0.400* (0.003) 0.077 (0.819) 10.385 (0.100) −15.399** (0.040) 0.824* (0.000)
Panel (FE) −7.863* (0.000) 0.718* (0.005) −0.019 (0.264) 0.039** (0.049) −0.006** (0.045) −0.880** (0.013) −0.052 (0.221) 0.288* (0.000)
The impact of economic growth, population density, and…

Observations 150
No. of countries 6
R2 0.897
Hausman test ( p value) 68.61 (0.0000)

Values in parenthesis are the p values.

Hausman test is the Hausman specification test.
FE is the fixed effect models
* Significant at the 1% level.
** Significant at the 5% level.
*** Significant at the 10% level

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 M. Abdouli et al.

and 0.039 implies that a 1% increase of FDI inflows and population growth decreases
the per capita CO2 emissions of the BRICTS countries by 0.04 and 0.88%. This find-
ing is consistent with of Lantz and Feng (2006) for Canada and with Shahbaz et al.
(2015).
Additional findings from the fixed effect specification of the model indicate: (1)
there is an inverted U-shaped relationship between CO2 emissions and FDI inflows;
(2) there is an inverted U-shaped relationship between CO2 emissions and population
as well as between CO2 emissions and GDP in the BRICTS countries over the period
1990–2014. The first result may imply that technological changes have shifted from
enhancing more environmental friendly production techniques (pollution halo effect).
Similarly, Shahbaz et al. (2015) found that foreign investors use better management
practices and advanced technology, resulting in a cleaner environment in the host
countries. The second result may imply that population growth promotes environmen-
tal quality. This, in turn, insinuates that the populations of the BRICTS countries have
uncovered protectionist policies against environmental pollution; besides, the tech-
nological progress was applied by these countries for sure sound economic growth
without the deterioration of the environment.
To examine the evolution of CO2 emissions over time, the CO2 emission model
must be dynamic. In this context, we estimate a dynamic panel data model using the
GMM system estimator.

4.3 Results of dynamic panel estimations

We use a dynamic panel specification where lagged levels of the environment are
taken into account using the GMM system estimator. The consistency of the GMM
estimator depends on the validity of instruments. To address this issue, we consider
two specification tests: the first is the Sargan test of over-identifying restrictions, which
tests the overall validity of the instruments (the null hypothesis is that the instruments
are valid) (Leitão 2015); the second is the second-order autocorrelation test for the error
term, which tests the null hypothesis of no autocorrelation (Abdouli and Hammami
2015).
The results for the dynamic panel are reported in Table 5 and entail that there are
no problems with serial correlation (AR2). This test was proposed by Arellano and
Bond (1991). On the other hand, Sargan’s tests found no evidence of miss-specification
at conventional significance levels. This implies that the dynamic panel of the CO2
emission model is a good specification.
The coefficient of the lagged dependent variable (CO2 emissions; adjustment coef-
ficient) is positive and statistically significant at the 1% level. The lagged value of
CO2 emissions impacts on its current value. The results here are consistent with those
of a recent study by Menz and Welsch (2012) for the OECD countries; Abdouli and
Hammami (2016a) for the MENA countries.
The squared term of GDP (GDP2 ) and GDP itself have an insignificant impact
on CO2 emissions for the BRICTS countries. This result is in contrast with the one
obtained by Tang and Tan (2015) and Leitão (2015) who showed that the environmental
Kuznets curve exists in Vietnam and Portugal.

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The impact of economic growth, population density, and…

Table 5 Results of the GMM

Explanatory variables Dependent variable: CO2
system
emissions (CO2 )
GMM system

CO2(t−1) 0.908* (0.000)

GDP 0.0446 (0.701)
GDP2 −0.004 (0.578)
FDI 0.018*** (0.074)
FDI2 −0.002 (0.219)
PD 0.106* (0.002)
Values in parenthesis are the p PD2 −0.009** (0.029)
values. AR (2) is tests for auto-
correlation in differences. Sar- EN 0.133* (0.000)
gan J test refers to the over- Intercept −1.195* (0.008)
identification test for the restric- Observations 144
tions in GMM estimation
* Significant at the 1% level No. of countries 6
** Significant at the 5% level AR (2) test ( p value) −0.75 (0.454)
*** Significant at the 10% level Sargan test 86.96 (0.511)

Regarding the FDI inflow variable, we found that FDI inflows lead to an increase of
the environmental degradation in any significant way at the threshold of 10%. Besides,
a 10% rise of the FDI inflows causes the increase of CO2 emissions by around 0.018%
for the BRICTS countries. This implies that foreign investors use bad management
practices and technology that damage environmental quality in the BRICTS countries.
This result seems to contradict the findings of Shahbaz et al. (2015) in high-income
countries, but seems consistent with the results of the work of Lee (2013) in 19 nations
of the G20.
The nonlinear terms of the squared of the FDI (FDI 2 ) have an insignificant impact,
whereas FDI is positively linked with CO2 emissions. This supports the PHH and
motivates that environmental Kuznets curves are not valid in the BRICTS countries.
These results support the findings of Ren et al. (2014) who found that the rise of
foreign direct investment impedes environmental quality in China.
The nonlinear relationship between the population density and CO2 emissions
is inverted U-shaped. The square of population density (PD2 ) has a negative sign,
whereas population density is positively linked to CO2 emissions, which supports an
inverted U-shaped relationship between population density and environmental quality.
This implies that population growth tends at first to increase CO2 emissions, in order
to supply the needed goods and services in the economy. On the other hand, it may
imply that technological changes have shifted from enhancing more environmentally
friendly production techniques by the research and development. These results are in
line with those of Lantz and Feng (2006) for Canada. However, the increase of popu-
lation density and demographic expansion cause the increase of the awareness about
the environmental impacts, resulting in more pressure to adopt strict environmental
standards (Seldon and Song, 1994).

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Table 5 reports that energy consumption has a significant positive impact on CO2
emissions in the BRICTS countries. A 1% rise in energy consumption increases carbon
emissions by 0.133%. This result shows that the increase of energy consumption leads
to environmental degradation in these countries. This finding is in line with those of
Soytas et al. (2007) for the USA; Halicioglu (2009) for Turkey; Zhang and Cheng
(2009) for China; and Abdouli and Hammami (2016b) for the Middle Eastern and
North African countries.
The results of the dynamic panel estimation indicate: (1) there is an inverted U-
shaped relationship between CO2 emissions and population density; (2) there is a
linear relationship between CO2 emissions and FDI inflows, whereas CO2 emissions
and GDP are unrelated. This result shows that population growth tends, at first, to
increase CO2 emissions in order to supply the needed goods and services in the econ-
omy. On the other hand, it may imply that technological changes have shifted from
enhancing more environmentally friendly production techniques by the research and
development. In other words, population growth contributes to discover new tech-
niques in order to eliminate pollution using the research and development. In addition,
foreign direct investment increases pollution in these countries because they apply
weak environmental regulations. Then, FDI inflows into the BRICTS countries are
due to the strict regulations applied by their home countries.
We can conclude that the static panel estimation (OLS and FE) shows that the
environmental quality of the BRICTS countries is essentially very sensitive to the
level of economic growth, FDI inflows, population growth, and energy. In addition,
the nonlinear relationship between them shows that there is an inverted U-shaped
relationship between CO2 emissions and FDI inflows. However, there is an invalid
U-shaped relationship between CO2 emissions and population, as well as between
CO2 emissions and GDP, in the BRICTS countries over the 1990–2014 period. On the
other hand, for the dynamic panel estimation (Sys-GMM) the environmental quality is
not very sensitive to economic growth. In addition, the nonlinear relationship between
population density and CO2 emissions is an inverted U-shape (EKC is present), while
there is an invalid U-shaped relationship between CO2 emissions and FDI inflows, as
well as between CO2 emissions and GDP.
Accordingly, policymakers should take into account these phenomena in order to
build sound urbanization and education policies to reduce CO2 emissions and consider
more energy conservation policies.

5 Conclusions and policy implications

This paper has investigated the nonlinear influence of economic growth, FDI inflows,
and population density on the environmental degradation in the BRICTS countries
for the period from 1990 to 2014. To properly deal with the static and dynamic panel
models, we used the ordinary least squares (OLS), fixed effect (FE) models, and the
GMM system.
Our findings may be summarized in two points. First, according to the empirical
results for each country, the OLS estimation analysis reveals that increases of the per
capita GDP impede the environmental quality (the scale effect) in China, India, Brazil,

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South Africa, and Turkey, but for the Russian Federation, the rise of the per capita
GDP reduces the CO2 emissions (the technical effect). However, FDI reduces CO2
emissions at every stage of economic growth (FDI halo hypothesis) for Turkey, but
not for both China and the Russian Federation (pollution haven hypothesis.)
Population growth negatively and positively affected the environmental quality.
For China, Brazil, and South Africa, it had a crucial role to protect the environmental
quality. However, in India, it caused environmental pollution.
In addition, the increase of energy consumption resulted in an increase of CO2
emissions in all the countries, except in Brazil, where it had no impact. This implies
that energy consumption promotes economic growth, but causes environmental degra-
dation.
Then, the linear and nonlinear relationships between economic growth, FDI inflows,
population density, and CO2 emissions are shaped like inverted U curves. The latter
provides evidence supporting an inverted U-shaped relationship between economic
growth and CO2 emissions. This implies that economic growth initially increases and
then reduces CO2 emissions as economic growth, which reaches the threshold level in
China, India, Brazil, South Africa, and Turkey, respectively (Abdouli and Hammami
2016a). Similarly, there is an inverted U-shaped relationship between CO2 emissions
and population growth for China, Brazil, Turkey, and a U-shaped relationship between
CO2 emissions and FDI inflows in China and the Russian Federation. The former result
may imply that population growth, which at first tends to increase CO2 emissions in
order to supply the needed goods and services in the economy, eventually forces CO2
emissions to decrease through increased environmental conservation pressures (Lantz
and Feng 2006). Moreover, the latter result may imply that FDI inflows have shifted
from enhancing more environmental friendly production techniques to encouraging
CO2 emission to enhance production techniques (Shafik 1994; Lantz and Feng 2006).
Similarly, Shahbaz et al. (2015) found that the linear and nonlinear terms of FDI inflows
are negatively linked to CO2 emissions, which supports the FDI halo hypothesis (FDI
halo). This also implies that foreign investors use better management practices and
advanced technology, resulting in a cleaner environment in the host countries.
Finally, the empirical results for the global panel show that economic growth and
energy consumption impede environmental quality, whereas FDI inflows and popula-
tion density decrease CO2 emissions.
An inverted U-shaped relationship between CO2 and FDI, as well as between CO2
and population, is found in this research. However, the Kuznets curve between CO2
emissions and GDP is not valid in the BRICTS countries. The first and the second
results found that population density and FDI inflows initially increase and then reduce
CO2 emissions as the population density and FDI inflows reach the threshold level.
This implies that population growth, at first, tends to increase CO2 emissions in order
to supply the needed goods and services in the economy. However, this may imply
that technological changes have shifted from enhancing more environmentally friendly
production techniques by the research and development. In addition, the increase of
FDI inflows in the BRICTS countries impedes the environmental quality, because
these countries have applied weak environmental regulations that may attract inward
FDI by profit-driven companies eager to circumvent costly regulatory compliance in
their home countries (PHH.)

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Appropriate policies have been recommended for this study due to the impact of
economic growth and energy consumption. Therefore, it is obligatory for the BRICTS
countries to discover a new technique to reduce CO2 emissions by applying energy
efficient technologies and green economy.
Secondly, Turkey needs to consider strict environmental measures to attract FDI
inflows since FDI improves the environmental quality.
An inverted U relationship between economic growth and CO2 emissions is found
in China, Brazil, South Africa, and Turkey, which means that their governments apply
sound economic policies. Similarly, there is an inverted U-shaped relationship between
CO2 emissions and population density for China, Brazil, and Turkey. This implies that
their governments encourage investment in the human capital to protect environmental
quality. However, for the remaining countries, it is obligatory to build policies to reduce
the number of people and invest in the human capital to reduce CO2 emissions.
In China and the Russian Federation, there is a U-shaped relationship between CO2
emissions and FDI inflows. This suggests that the remaining countries should encour-
age firms to adopt environment-friendly technologies not only to enhance domestic
production but also to lower CO2 emissions. These countries should introduce poli-
cies with a combination of mandatory and nonmandatory approaches which should be
used via command and control tests with economic incentives for the environmental
regulations. The nonmandatory approach should be applied in some industries or sec-
tors initially. Once proven to be successful, they should be applied on a wider scale
for environment safety.
Finally, policymakers in the BRICTS countries need to embrace more energy
conservation policies and sound urbanization policies to reduce CO2 emissions and
consider strict environmental measures and energy policies.

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