The growing importance of environmental sustainability highlights the need to identify factors that exacerbate pollution and ecological degradation. Among these, the environmental impact of foreign direct investment (FDI) remains debated. While the pollution halo hypothesis suggests that FDI can reduce carbon emissions through technology transfer, the pollution haven hypothesis emphasizes its adverse environmental effects. This study advances the debate in three ways. First, the analysis focuses on the FDI network indicator PageRank alongside overall FDI inflows. Second, renewable energy is incorporated as a threshold variable shaping the environmental effects of FDI. Third, the analysis is extended to climate risk as a long-term consequence of carbon emissions. Using a dynamic panel threshold model for 126 countries over the period 2009–2022, the results reveal that when countries occupy more influential positions in the global FDI network (high PageRank), the pollution halo hypothesis is confirmed for both environmental indicators at higher levels of renewable energy transition. In contrast, in the model based on FDI inflows, the pollution haven hypothesis is supported across both regimes, although the magnitude of the adverse environmental effect is smaller in the regime with a higher share of renewable energy. Overall, the findings suggest that strengthening renewable energy transition can mitigate the negative environmental effects of FDI, even when pollution-intensive dynamics dominate under conventional FDI measures. Policymakers are therefore advised to not only manage the volume of FDI inflows and consider the structural position of countries within the global investment network, but also to promote the expansion of renewable energy in the energy mix as a key instrument for improving environmental outcomes.
Owjimehr et al. (Fri,) studied this question.