Sustainable relationship between FDI, R&D, and CO2 emissions in emerging markets: An empirical analysis of BRICS countries

Abstract

This paper empirically analyzes sustainable relations between inward FDI (IFDI), outward FDI (OFDI), the R&D expenditure ratio and CO2 emissions based on balanced panel data from the BRICS (namely, Brazil, Russia, India, China and South Africa) countries for the period 2003-2017. Generally, the results confirm a negative effect of IFDI and a positive effect of OFDI on the R&D expenditure ratio, both with statistical significance. Further exploration of the IFDI, OFDI and R&D impacts on CO2 emissions was based on an assumption that innovation development mitigates environmental pollution. The research outcome revealed positive associations between IFDI and the R&D expenditure ratio with CO2 emissions, showing the connection of environmental pollution to growth-focused national economic strategies. Based on these results, we recommend the following policies: (1) rethinking domestic industries protectionism trends and research support to enhance FDI spillover effects, (2) the drafting of New Development Bank specific environment-friendly investment programs aimed at innovation activities, and (3) looking into further easing the green technologies from developed countries.