Bridging innovation and sustainability: the strategic role of foreign direct investment in reducing CO₂ emissions

This study investigates the impact of high-tech innovation on carbon emissions in Europe and BRICS countries from 2010 to 2022, emphasizing the mediating role of foreign direct investment (FDI). Grounded in Endogenous Growth Theory and the Pollution Halo Hypothesis, we employ robust panel econometric techniques—including PCSE, alternative-specification robustness checks, and two-step System GMM—to analyze both the direct and indirect effects of innovation on environmental outcomes. The results show that high-tech innovation significantly reduces CO₂ emissions and simultaneously attracts FDI, which further contributes to environmental improvement by facilitating the transfer of cleaner technologies. However, the effects vary across development stages: innovation reduces emissions in advanced European economies but increases emissions in BRICS countries due to industrial expansion and weaker regulatory frameworks. These findings underscore the need for context-specific policy strategies. We recommend strengthening innovation-driven green policies, directing FDI toward low-carbon sectors, and reinforcing environmental regulations—particularly in developing regions—to ensure that technological progress aligns with long-term sustainability goals.