A Nonlinear Panel ARDL Analysis of Pollution Haven/Halo Hypothesis

Abstract

There is a growing popularity for the nonlinear econometric approaches, since linkages among variables are not always linear. Nonlinear approaches provide a broader range of knowledge compared to the linear model. This research aims to assess the impact of foreign direct investment on pollution. To capture the potential asymmetries resulting from rise and fall in the foreign direct investments, the nonlinear panel autoregressive distributed lag approach is employed. In the empirical analysis, annual data of selected 22 transition economies from 1995 to 2016 is utilized. The findings highlighted the existence of asymmetric linkages among variables. In other words, evidence reveals that positive shock in foreign direct investment improves environmental quality, while the negative shock is detrimental to the environment. © 2022, The Author(s), under exclusive license to Springer Nature Switzerland AG.