The Impact of FDI on CO ₂ Emissions in Latin America

This paper uses panel Granger causality tests to study the relationship between sector-specific foreign direct investment (FDI) and CO2 emissions. Using a sample of 18 Latin American countries for the period 1980–2007, we find causality running from FDI in pollution-intensive industries (“the dirty sector”) to CO2 emissions per capita. This result is robust to controlling for other factors associated with CO2 emissions and using the ratio of CO2 emissions to GDP. For other sectors, we find no robust evidence that FDI causes CO2 emissions.