Journal of Environmental Management 270 (2020) 110827

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Journal of Environmental Management

journal homepage: http://www.elsevier.com/locate/jenvman

Research article

Foreign direct investment and education as determinants of environmental

quality: The importance of post Paris Agreement (COP21)
Muhammad Wasif Zafar a, b, Quande Qin a, *, Muhammad Nasir malik c, Syed Anees Haider Zaidi d
a
College of Management, Shenzhen University, Shenzhen, 518060, China
b
COMSATS University Islamabad, Vehari Campus, Pakistan
c
UCP Business School, University of Central Punjab, Lahore, Pakistan
d
COMSATS University Islamabad, Sahiwal Campus, Pakistan

A R T I C L E I N F O A B S T R A C T

Keywords: This study investigates the effect of foreign direct investment and education on environmental quality for Asian
Foreign direct investment countries by controlling income, energy consumption, and urbanization for the period of 1990–2018. We have
Education applied panel cointegration techniques to probe for long-run associations among the variables. The empirical
Urbanization
results indicate the existence of cointegration between the variables. Dynamic ordinary least square and fully
Emissions
Growth
modified least square methods are applied to estimate long-run elasticities. The empirical results confirm that
environmental quality is sensitive to foreign direct investment, education, and urbanization. Income and energy
consumption deteriorate environmental quality by increasing CO2 emissions. In the long-run, bidirectional causal
associations are found for emissions- foreign direct investment, emissions-energy use, income- emissions, foreign
direct investment -income, and energy-income nexus. Furthermore, there is a unidirectional causality running
from education and urbanization to emissions, foreign direct investment, income, and energy use. Policymakers
in Asian economies are encouraged to establish policies that increase the education budget, promote the use of
green energy, attract foreign direct investment with green technology, and expand cities to limit the urbanization
effects on environmental quality.

1. Introduction
Paris Agreement – ratified by EU and 186 countries and negotiated
by 197 members of UNFCCC at the 21st Conference of the Parties
(COP21) – has prescribed the overarching global climate goal of limiting
the increase in average temperature to well below 2 � C above the pre-
industrial level. In this perspective, the members came up with their
intended Nationally Determined Contributions (NDCs) that included
greenhouse gas (GHG) emission targets, among other intentional ac­
tions. While the Agreement requires the NDCs to be ambitious and
progressive, the goals remain voluntary and non-binding. According to
UNEP, the annual global emission reduction of 7.6% is required during
the next decade to limit temperature rise to 1.5 � C. However, USA – one
of the top global emitters (15% of global GHG emission in 2017 and
2.5% increase in 2018) – has already initiated the process for with­
drawal from the agreement that will become effective in November
2020. Among other top emitters, China’s emissions rose by 1.6%, India’s
emissions rose by 5.5% while only EU’s emissions declined by 1.3% in
2018. With these GHG emission trends, the global temperatures will
likely exceed well beyond 3 � C above the pre-industrial level in this
century that can have cataclysmic implications for life through ozone
depletion, glacial melting, extreme weathers and loss of biodiversity.
In terms of regional emissions, Asia Pacific is the largest emitter
contributing about 50% of the global CO2 emissions leaving South Asia
and South East Asia among the most vulnerable regions to climate
change. While GHG emission growth in high-income countries has sta­
bilized, it is likely to be mammoth in low- and middle-income devel­
oping countries as they rely heavily on fossil fuels to meet growing
energy demands. These rapidly growing yet financially and technolog­
ically constrained Asian economies have a substantial renewable energy
potential and posit a significant challenge as well as an opportunity for
global efforts on climate change through full decarbonization of energy
systems.
In this backdrop, not only the role of COP21 needs to be reviewed in

* Corresponding author.
E-mail addresses: wasif.zafar6@yahoo.com (M.W. Zafar), qinquande@gmail.com (Q. Qin), mnmalik@gmail.com (M.N. malik), aneeshaider5@hotmail.com
(S.A.H. Zaidi).

https://doi.org/10.1016/j.jenvman.2020.110827
Received 18 December 2019; Received in revised form 11 May 2020; Accepted 23 May 2020
Available online 11 June 2020
0301-4797/© 2020 Elsevier Ltd. All rights reserved.
M.W. Zafar et al.
determining the effectiveness of NDCs, but equally importantly, aca­
demic research should focus on exogenous and endogenous variables
that affect environmental quality. In this context, the role of foreign
direct investment (FDI) and education can be particularly significant.
FDI, as an exogenous variable, serves as a route for importing techno­
logical innovations for driving economic growth (Shahbaz et al., 2018),
while a rise in educational attainment fosters innovation in an endoge­
nous manner (Bano et al., 2018). Policymakers in developing countries
tend to favor rapid economic growth even at the expense of environ­
mental quality. In these countries, economic growth is fueled through
non-green technologies brought via the FDI route, and the educational
attainment is not entirely aimed at achieving efficiency in fossil
fuel-driven energy production. Therefore, the role of FDI and education
on the sustenance of environmental quality needs to be assessed for the
case of emerging economies, so that the economic growth is not ach­
ieved at the cost of ecological balance.
Farhani et al. (2014) proposed that the rise in income and
improvement in environmental quality can be implemented at the same
time. For this purpose, macroeconomic variables need to be studied for
yielding a significant impact on environmental quality and economic
growth. In this context, this work assessed the effect of FDI, education,
and urbanization on ecological improvement in selected Asian coun­
tries. Previous studies have generally evaluated environmental quality
using measurements of carbon emissions (Akadiri et al., 2019; Long and
Ji, 2019). Carbon emissions are a prime reason behind environmental
degradation and are a significant threat to environmental quality (Zaidi
et al., 2018b). Therefore, controlling carbon emissions without
compromising economic growth has become a primary concern for
policymakers. The rising flow of FDI has been considered a hallmark of
economic growth in a globalized economy, driving economic develop­
ment, employment opportunities, and modernization for developing and
emerging economies alike. However, these inflows are also an essential
driving determinant of environmental pollution because of their latent
contribution (Shahbaz et al., 2015).
The effects of FDI on ecology remain under discussion worldwide
because of the different results seen to date. One school of thought
concerning the FDI-environmental quality nexus argues that multina­
tional organizations relocate carbon-emitting industries from high-
income to low-income countries because conservational directives are
not as stringent in developing countries (Cole and Neumayer, 2004).
These developing countries welcome this relocation to achieve growth
at the cost of ecological balance. This strand of research supports the
pollution Haven hypothesis. Another school of thought argues that FDI
increases energy efficiency and improves environmental quality through
technology transfers and innovative production systems (Eskeland and
Harrison, 2003). This strand of research supports the pollution halo
hypothesis which states that the role of FDI inflows should be considered
in pollution reductions in a host economy.
Ulucak and Bilgili (2018) argue that environmental problems are due
to the absence of education in societies. As such, the role of education is
significant in achieving a sustainable environment and it is the main
ingredient for human capital in globalized economies. More specifically,
the significance of education in the human development process of so­
ciety is undeniable, primarily when energy efficiency and environ­
mental awareness concepts are involved (Dias et al., 2006).
Pablo-romero and S� anchez-braza (2015) found an association between
human capital and energy utilization and argued that energy con­
sumption might be reduced via human capital in the production process.
Similarly, Pîrlogea (2012) noted that countries possessing high human
capital also consume low energy per capita. Bano et al. (2018) proposed
that human capital provides the necessary knowledge to understand the
environmental and energy security issues.
Further, carbon emission reduction targets can be achieved with the
help of human capital through an increase in energy efficiency (Kwon,
2009). Balaguer and Cantavella (2018) suggested that improvements in
education improve environmental quality. An increase in education
2
Journal of Environmental Management 270 (2020) 110827
brings a higher level of environmental awareness leading to decreased
emissions. High education levels also provide support for environment
friendly technologies that further reduce carbon emissions.
Another internal challenge faced by the Asian region is ‘increasing
urbanization.’ People from rural areas are migrating to urban areas for
improved access to education, employment, and health facilities which
increases the burden on urban governments. The Asian region is expe­
riencing rapid urbanization with an almost doubling (32.5%–61.4%) of
the urbanization rate between 1990 and 2018 (Shahbaz et al., 2019).
The growing urban population requires large amounts of energy in the
form of electricity, coal, and natural gas to enable uninterrupted work
and living. Besides, due to the enhanced income level, urban residents
are more likely to purchase personal automobiles and other electric
home appliances. This significantly increases fossil fuel consumption
and results in higher emission levels (Mi et al., 2016). As urbanization
uplifts economic activities, it is a driver of economic growth but also
causes increased energy consumption and higher carbon emissions.
Therefore, urbanization is a crucial element to study concerning carbon
emissions and economic growth.
The Asian region provides a unique opportunity to study the causal
link between these variables as the area holds nearly half of the world’s
population and is experiencing significant economic growth. Asian
growth remained steady at 5.4% during 2018, maintaining the region’s
status as a global growth leader with China growing at 6.2%, Japan at
1.2%, Bangladesh at 6.9%, India at 6.8%, Malaysia at 4.2%, the
Philippines at 6.8%, Indonesia at 5%, and South Korea at 2.7% growth
rate. In general, Asian countries are experiencing high economic growth
and increased exports but also a decline in environmental quality that
has become a significant challenge.
According to the Yale Environmental Performance Index in 2018,
India and Bangladesh have the lowest performance, with Nepal at 176,
Pakistan at 169, China at 120, Thailand at 121, Vietnam at 132,
Indonesia at 133, and Cambodia at 150. Besides, the human capital
development gap remains high as the global average stands at 62%
meaning 38% of the human capital remains neglected. For South Asia,
this gap is wider than the global average, and 46% of the region’s human
capital is ignored which is just ahead of Sub Sahara Africa. Human
capital is a fundamental component of productivity and the functioning
of society and its institutions. In comparison, global human capital index
ranking for India stands at 103, Bangladesh at 111, Pakistan at 125,
Nepal at 98, and Sri Lanka at 70 marginally outperforming its neighbors.
The GHCI ranking for China stands at 34, Japan stands at 17, and South
Korea stands at 27, with high scoring on the capacity sub-index of GHCI
due to the educational achievements of older generations. Thailand is at
40 and Malaysia is at 33 with a high score on Know-how sub-index of
GHCI.
Given the importance of emerging and developing Asian economies,
the present article assesses the consequence of FDI and education on
environmental quality in Asian countries. This study also evaluated
economic growth, energy consumption and urbanization as moderators
of this association. The rapid growth of the Asian region is making issues
related to economic growth, FDI, urbanization, and environmental
degradation increasingly severe.
Existing literature has mainly discussed the linear relationship be­
tween FDI and urbanization concerning environmental quality while the
non-linear aspect has not been considered. This research article fills
another research gap as the role of education has not been found in
previous studies related to Asian countries and have not considered the
FDI-environmental quality nexus. The non-linear effect (Environment
Kuznets Curve) of economic growth, FDI, and human capital provide
useful insights for policymakers, economists, and researchers, informing
the development of effective policies for Asian countries. Some of the
Asian countries have successfully attracted ample foreign direct in­
vestment but ignoring environmental quality. Similarly, these countries
have focused on education to provide better human capital to foreign
investors, but education regarding environmental quality is not
M.W. Zafar et al.
pertinent. This study is essential in this regard to highlight the need for
clean FDI and improved education in Asian countries to attain higher
growth rates without losing environmental quality. Being the largest
emitters of carbon, Asian countries are required to modify their eco­
nomic policies in respect of foreign direct investment, education, energy
consumption patterns, and environmental regulations. This study is
helpful in this regard.
The remaining sections of this article are structured as per the
following: Section-2 presents the discussion on relevant literature;
Section-3 elaborates the empirical model and statistical tests; Section-4
reports the study outcomes with discussion, and Section-5 concludes the
study by discussing suitable policy designs.
2. Literature review
This article examines the effects of FDI, education, and urbanization
on environmental quality in Asian countries. Grounded on the previous
studies on the EKC estimation for carbon emissions, we classified the
review into three categories: FDI-Environmental Quality Nexus,
Education-Environmental Quality Nexus, and Urbanization-
Environmental Quality Nexus.
2.1. Foreign direct investment-environmental quality nexus
In literature, studies have inspected the FDI-environmental quality
association for single and cross-country data; however, previous studies
have led to conflicting results and no consensus has emerged about the
relationship between FDI and environmental quality using different
econometric methods.
This study divided the past research on FDI and environmental
quality into two groups. The first group of studies found that FDI de­
teriorates environmental quality while the second group of studies
revealed that FDI improves the environment. Using a simultaneous
equation model, He (2006) investigated the impact of FDI on pollution
in China and found that an augmentation in FDI stock results in the rise
in industrial CO2 emissions. Al-mulali (2012) used data for twelve
Middle Eastern nations to determine the factors impacting carbon
emissions by integrating FDI, energy consumption, trade openness, and
GDP growth in an augmented function of carbon emissions. The study
outcomes revealed an inverse association between FDI and environ­
mental quality. Sbia et al. (2014) also found an analogous outcome for
the United Arab Emirates by adopting the ARDL approach. Using carbon
emissions, Seker et al. (2015) studied the linkages between FDI and
environmental quality under the EKC hypothesis for Turkey during
1974–2010. Their results indicated that FDI was positively and signifi­
cantly associated with environmental quality. Baek (2016) explored the
linkages among FDI, income, energy consumption, and environmental
quality for 5 ASEAN countries, using the pooled mean group method
during 1980–2010. The empirical results confirmed that FDI inflow
increased environmental pollution. Solarin et al. (2017) found a similar
outcome for Ghana from 1980 to 2012. Validating the Pollution Haven
Hypothesis (PHH), Sapkota and Bastola (2017a,b) analyzed 14 South
American countries from 1990 to 2014, finding that carbon emissions
increase with an increase in FDI inflows. Similarly, Shahbaz et al. (2019)
found support for PHH for MENA countries by using the system GMM
method.
The second group of researchers argues that FDI improves environ­
mental quality by reducing carbon emissions. For example, Tamazian
and Rao (2010) explored the linkage between economic growth and
environmental quality by including financial development and institu­
tional quality as additional variables using the GMM approach
throughout 1993–2004 for 24 transitional economies. Their results
indicated that FDI and institutional quality improve environmental
quality, while the EKC hypothesis is also validated. Al-mulali and Foon
(2013) applied the non-stationary panel approach to scrutinize the PHH
in the multivariate framework for GCC countries between 1980 and
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Journal of Environmental Management 270 (2020) 110827
2009. They used fully modified least square (FMOLS) and noted that FDI
has a negative and significant impact on pollution, i.e., rejection of the
PHH.
Kivyiro and Arminen (2014) examined the long-term relationship
between FDI and pollution emissions, by applying the EKC hypothesis
for Sub-Saharan countries. Their empirical outcomes provided evidence
that FDI is associated with increased pollution emissions in Kenya and
Zimbabwe. However, FDI improved environmental quality in Congo.
Tang and Tan (2015) studied the role of inward-facing FDI with carbon
emissions in Vietnam from 1976 to 2009. Their results demonstrated
that inward-facing FDI is associated with reduced carbon emissions.
Similarly, Shahbaz et al. (2015) inspected the link between FDI and
environmental quality under a multivariate framework, using the period
of 1975–2012 for low-middle-high income countries. Their findings
suggested that there is an intensification in pollution emissions with a
surge in FDI for middle income and full sample countries. However,
environmental quality improves with an increase in FDI in low- and
middle-income countries.
For Tunisia and Morocco, Hakimi and Hamdi (2016) used time series
and panel techniques to observe the impact of FDI inflows, trade liber­
alization, and economic development on environmental degradation.
They demonstrated that carbon emissions diminished as a result of
economic growth and inward-facing FDI, but increased with trade
liberalization. Jiang et al. (2018) scrutinized the consequence of
inward-facing FDI on ecological deterioration, using city-level data from
China, and found that FDI was associated with reduced carbon emis­
sions. Moreover, they supported the Pollution Halo Hypothesis, by
arguing that foreign firms export environment-friendly know-how to
emerging economies. This helps in reducing pollution in host countries.
Shahbaz et al. (2019) reinvestigated the link between FDI and envi­
ronmental quality for Vietnam and reported similar results by using the
ARDL method. By using city-level data for Korea, Hille et al. (2019)
found the same results in the Simultaneous equation modeling.
Recently, Bildirici and Gokmenoglu (2020) probed the link between FDI,
terrorism, and polluting emissions for selected Asian countries, and they
reported a positive relationship between FDI and emissions. On the
contrary (Xie and Sun, 2020), suggested that PM2.5 emissions were
decreased with the increase in FDI in emerging economies. Another
study conducted by (Omri et al., 2020) on 23 developing countries, and
they also reported similar results by using GMM application.
2.2. Education-environmental quality nexus
Key factors behind sustainable development comprise of: (a) the role
of education in endorsing sustainable development; (b) the part of an
educated workforce in production processes; and (c) the preference of
educated household for efficient energy use (Mirza and Uddin, 2014; Liu
et al., 2017). The economic growth literature suggests that human
capital is a fundamental element of economic development. Different
factors drive human development, including education, skilled labor,
knowledge, and innovation. However, education is the only source that
equips us to comprehend the reality of things. Technology adaptation
and implementation costs are significantly reduced with the help of
human development (Kim and Lee, 2009). Hartman and Kwon (2005)
found that environmental costs are lower for firms that have a large
count of educated employees. Desha et al. (2015) argued that environ­
mental knowledge through education helps to increase the proportion of
renewable energy leading to reduced CO2 emissions.
Few studies have empirically examined the association between
education and environmental quality for single country and panel data.
For example, using a panel estimation technique for the period
1991–2003, Managi and Jena (2008) explored the Environmental Kuz­
nets Curve (EKC) hypothesis utilizing various ecological measures,
including an education index, population density, and urbanization as
additional variables using state-level industries data. Their results
concluded that education helps to reduce SO2. However, results also
M.W. Zafar et al.
indicated that an increase in educational level leads to an increase in
NO2 and suspended particulates.
Examining Middle East, North Africa, and the European Union na­
tions, Abid (2017) explored the influence of economic, financial, and
institutional development on environmental quality, using the EKC hy­
pothesis applied with a dynamic Generalized Method of Moments
(GMM) model for 1990–2011. The results indicated that the ecological
balance recovers with the rise in education level. By using random and
fixed effect panel data techniques, Sapkota and Bastola (2017a,b)
studied the influence of FDI, GDP, human capital, energy consumption,
capital, and unemployment on environmental pollution, focusing on 14
Latin American countries from 1980 to 2010. They divided the esti­
mated data into two categories based on the level of income, and
educational attainment was used as a measure for human capital. They
concluded that environmental degradation increases with the increase
in educational attainment for the full sample and for high-income
countries. However, educational attainment improves environmental
quality in low-income countries.
More recently, Balaguer and Cantavella (2018) scrutinized the
EKC-oriented associative framework between education and carbon
emissions from 1950 to 2014 for Australia using the Auto-Regressive
Distributive Lag (ARDL) approach. Numbers of graduate and
post-graduate students were used as proxy to measure education. An
educational variable was added to extend the EKC hypothesis. The
empirical results confirmed the EKC hypothesis, suggesting that edu­
cation initially increases CO2 emissions; however, after reaching a
threshold educational level, education tends to reduce carbon emissions.
Considering the context of Pakistan, Wang et al. (2018) found that
human development index Granger causes carbon emissions in the short
run; however, in the long-run carbon emissions, Granger creates human
development index. Similarly, Bano et al. (2018) inspected the influence
of human development on CO2 emissions utilizing the ARDL method
over 1971–2014. They measured human capital using four proxies: (i)
secondary school enrollment, (ii) secondary school enrollment for
vocational education, (iii) total secondary school enrollment, and (iv)
average year school of education. Their results suggested that all proxies
used for human capital were associated with reductions in carbon
emissions. Using the EKC hypothesis framework, Ulucak and Bilgili
(2018) examined the association between ecological footprint (EF) and
human capital index for different income level countries for the period
1961–2013. They applied Continuously Updated Fully Modified
(CUP-FM) methods to resolve the issue of panel heterogeneity, and their
results indicated that human capital reduces environmental degradation
for all groups of countries. Zafar et al. (2019) probed the relationship
between human capital and ecological footprint. They used human
capital as a proxy of education and environmental footprint as a proxy
for environmental quality. The author reported that environmental
quality is increased with an increase in human capital. By controlling the
heterogeneity and cross-sectional dependence among the cross-sections
(Ahmed et al., 2020), found a negative link between human capital and
environmental quality for G-7 countries.
2.3. Urbanization-environmental quality nexus
The link between urbanization and environmental quality using time
series and panel data has been explored in the existing literature.
However, researchers have not reached a consensus about whether ur­
banization increases environmental quality or not. For example, Cole
and Neumayer (2004) studied the relationship between urbanization
and air pollution using the EKC framework for 86 countries with data
from 1975 to 1998. Their results indicate that urbanization is associated
with increased air pollution. Li and Lin (2015) assessed the association
among urban population growth, industrialization, and CO2 emissions
for 73 economies, divided by income levels. They used a panel estima­
tion approach and noted that urbanization is associated with increased
emissions for all groups of countries.
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Journal of Environmental Management 270 (2020) 110827
For G-20 countries, Arvin et al. (2015) assessed the
urbanization-carbon emissions association using a panel data approach
and suggested that urbanization escalates the concentration of CO2
emissions. Also, using a parallel method, Wang et al. (2016) explored the
direct association between carbon emissions and urbanization. Later,
Saidi and Mbarek (2017) studied the link between urbanization, finan­
cial development, trade, income, and CO2 emissions for emerging
economies, using the GMM approach. Their results found that urbani­
zation leads to an increase in environmental quality. Embarking on the
ARDL route, H.S. Ali et al. (2017) explored the link between urbaniza­
tion, trade openness, output, and carbon emissions for Singapore and
concluded that urbanization helps reduce CO2 emissions. Applying a
similar approach to study Malaysia, Aung et al. (2017) found that ur­
banization harms environmental quality.
Within the context of N-11 countries, Sinha et al. (2017) utilized
GMM to probe the association between urbanization and environmental
degradation, while controlling other factors and found that the urbani­
zation process worsens environmental quality. Liu and Bae (2018)
investigated the connection between the process of industrialization,
urbanization, and carbon emissions for China, employing the ARDL
bounds test. Study outcomes showed that carbon emissions increase
with urbanization growth. For East Asia and the Pacific, Hanif (2018)
examined the link between urban sprawl and CO2 emissions through a
panel data approach, finding that urban sprawl is associated with
increased emissions. Using province-level data of China, Wang and Li
(2018) assessed the consequence of urbanization on environmental
quality. Using a panel model, they found that environmental quality
declines as urbanization increases in China. Pata (2018) used the
Gregory-Hansen method to cover structure breaks in data to assess the
urbanization-carbon emissions association for the Turkish economy.
They reported that urbanization positively and significantly impacts
carbon emissions.
In a subsequent study, Salahuddin et al. (2019) assessed the conse­
quence of globalization and urbanization on CO2 emissions in
Sub-Saharan African countries. Westerlund method is utilized to deter­
mine the long-run cointegration among the model parameters. Their
results indicated that urbanization leads to increased carbon emissions.
By using the ARDL approach, Ali et al. (2019) presented similar findings
for Pakistan (Wang et al., 2020). used Dynamic Unrelated Seemingly
Regression (DUSR) for Asia-Pacific Economic Cooperation (APEC)
countries to probe the association between urbanization and the level of
emissions. Their results indicated that urbanization increases the level of
pollution. Similar results were reported by Asongu et al. (2020) for Af­
rica by using the panel methodology.
3. Theoretical framework and data
This article investigates the effects of FDI, education, and urbaniza­
tion on the environmental quality of selected Asian countries while
controlling for the variables of income and energy consumption for the
period of 1990–2018. The Asian countries studied are Bangladesh,
Cambodia, China, Hong Kong, India, Indonesia, Iran, Japan, South
Korea Republic, Malaysia, Myanmar, Nepal, Pakistan, Philippine, Sri
Lanka, Thailand, and Vietnam. Other Asian countries have been
excluded due to a lack of data. Per capita carbon emission is measured in
metric tons, gross domestic product (GDP) per capita is estimated in
constant 2010 US Dollars, net FDI inflows per capita is measured in
constant 2010 US Dollars.
Previous researches have used different proxies to measure educa­
tion including the number of graduate and postgraduate students in the
country ((Balaguer and Cantavella, 2018), population enrolled in
schools (Managi and Jena, 2008), and the percentage of the population
that has attended secondary school (Ehrhardt-Martinez et al., 2002).
This study used gross secondary school enrollment as a proxy for edu­
cation, consistent with Bano et al. (2018). Urbanization is measured
through the urban population as a share of the total population, and per
M.W. Zafar et al. Journal of Environmental Management 270 (2020) 110827

capita, energy consumption is measured as kg of oil equivalent. All data

is collected from the World Bank Indicators (World Bank, 2017). lnCO2;it ¼ β0 þ β1 lnFDIit þ β2 lnEDUit þ β3 lnUit þ β4 lnGDPit þ β5 lnENit
þ εit
3.1. Model development (2)
In this expression, CO2 represents carbon emissions; i represents
Asian countries are characterized by high growth potential, and to
cross-sections (1 … 17), and t denotes the period from 1990 to 2018.
realize this potential, the policymakers routinely put less emphasis on
Also, β0 explains the intercept term of the model, and β1 ; β2 ; β3 ; β4 ; and β5
sustainable development. The economic growth in these nations is
represent the coefficients of the independent variables; εit is the error
majorly driven by industrialization for which the FDI acts as a fuel.
term.
Industrialization peaks due to FDI inflows and this growth is accompa­
For analyzing different effects of FDI inflows, urbanization, and ed­
nied by the increase in vocational opportunities followed by the rise in
ucation on CO2 emissions, it is necessary to evaluate the pertinence of
the level of per capita income. The surge in vocational opportunities
the EKC hypothesis (Sinha et al., 2017). These effects can be classified
attracts more people from the semi-urban and rural areas; thereby, these
into composition, scale, and technique effects. Based on the specification
nations experience a rise in urbanization. The industrial growth and
given by Panayotou (1993), we explored the impact of the explanatory
increase in the urban population are followed by degradation in envi­
variables using an EKC quadratic specification. Equation-1 depicts the
ronmental quality in several forms, including deforestation and land
effect of explanatory variables on carbon emissions in linear-form.
contamination. Therefore, in preliminary phases of economic growth,
However, different results are expected in quadratic specifications.
environmental degradation rises with the rise in the inflow of FDI,
Under the EKC framework, growth in the linear form of all the explan­
educational attainment, and income. With the graduation of time, the
atory variables, including FDI, education, and income, are expected to
increase of industrialization further erodes the ecological balance by
increase environmental degradation. However, beyond a certain
creating ambient air pollution. This is caused by majorly utilizing the
threshold level, these explanatory variables (in a non-linear form) are
consumption of fossil fuel-based energy solutions, which is considered to
expected to improve ecological balance.
be the prime driver of industrialization. Alongside this scenario, with the
During the beginning phases of economic development, countries
rise in living standards, demand for energy rises at the household level,
primarily focus on economic growth and do not consider the environ­
and to fulfill this additional demand of power, these nations experience
ment. In these periods, countries try their best to increase educational
a surge in fossil fuel consumption (Zafar et al., 2019). This gradual rise in
levels and vocational opportunities, attract more FDI, and encourage
the ambient air pollution might harm the state of wellbeing of the labor
urbanization. In these conditions, energy demands continue to expand
force, and this negative impact of the industrialization pattern might
and environmental pollution rises. The rise in educational attainment
hinder the economic growth pattern itself.
improves human resources and skills, and raises income. Education
Once the level of ambient pollution reaches a threshold level, the
brings social and environmental awareness in society, facilitating a
technique effect takes over the scale effect by gradually reducing the
decline in environmental pollution. This stage further boosts the econ­
level of pollution. At this stage, the rising level of educational attainment
omy when more FDI enters the host countries while incurring minimal
and ambient air pollution compels the citizens to substitute the polluting
environmental damage. Keeping in mind this background of the
technologies and fossil fuel-based energy solutions with cleaner pro­
explanatory variables, the linkages were explored under the EKC
duction technologies and green energy solutions (Sinha et al., 2017).
framework. The quadratic EKC model is as follows:
Therefore, policymakers start restricting, allowing international corpo­
rations to bring backdated technologies, and they start looking for lnCO2;it ¼ β0 þ β1 lnFDIit þ β2 lnFDI2 þ β3 lnEDUit þ β4 lnEDU2 þ β5 lnUit
technologically advanced solutions employing the FDI route. In this
þβ6 lnGDPit þ β7 lnGDP2 þ β8 lnENit þ eit (3)
way, the technique effect exerted by FDI starts allowing the level of
environmental degradation to come down. For institutionalizing the
4. Empirical results and discussion
sustainable development paradigm, policymakers try to revise the
educational curriculums for raising the awareness about ecological
The results in Table-1 show the yearly mean growth rate of model
balance and sustaining environmental quality. Therefore, the technique
parameters from 1990 to 2018. There was a positive trend in economic
effect is exerted by educational attainment. As a whole, the economic
growth for sample nations. The reported findings indicated that China
growth pattern uses the technique effect on ambient air pollution. This
achieved the highest economic growth (9.2685%), followed by
entire phenomenon can be explicated in terms of the EKC hypothesis
Myanmar (8.1146%) and Cambodia (5.6087%), while Japan (0.8695%)
(Muhammad and Avik, 2019). Based on this framework, we have carried
and Pakistan (1.7144%) occupied the lowest positions. Vietnam
out the empirical analysis in the present study.
(7.7464%), Myanmar (7.2105%), and China (5.4912%) had the highest
To explore the influence of FDI, education, and urbanization on
carbon emissions growth; however, the lowest growth rate was seen for
environmental quality in the panel data framework, we used the
Pakistan (1.4965%) and Japan (0.3503%). The FDI growth rate was
following CO2 model:
positive for all sample countries, Nepal (329.9283) and Malaysia
CO2 ¼ f ðFDI; EDU; U; GDP; ENÞ (1) (321.4774) received the highest levels of FDI, while Pakistan (10.1189)
and Vietnam (6.9832) gained the least amount of FDI. The education
In this expression, carbon emissions are a function of inward foreign
growth rate was positive for all sample countries. Similarly, urbaniza­
direct investment (FDI), education (EDU), urbanization (U), income
tion was also positive for all countries, except Philippine ( 0.3666) and
(GDP), and energy consumption (EN). Model parameters are log-
Sri-Lanka ( 0.0555). The highest energy consumption per capita levels
transformed to diminish the sharpness and for achieving better distri­
were recorded for China (4.6469) and Thailand (4.2453), whereas Japan
butional properties in the panel data. Natural-log convergent data ad­
( 0.0532) and the Philippine (0.1604) consumed the lowest amount of
dresses different dynamic features and remove heteroscedasticity
energy.
related issues. In comparison with linear conversion, outcomes are more
Using the correct econometric techniques is critical for developing
reliable and robust in case of log-linear transformation (for more details,
accurate empirical estimates. Before examining the integrating nature of
see (Paramati et al., 2016; Shahbaz et al., 2015):
the parameters, we first tested the correlation and endogeneity among
study variables which are reported in table-1 and table-2 respectively in
Supplementary Material. Then we investigated their cross-sectional
dependence through the application of a cross-sectional dependence

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M.W. Zafar et al. Journal of Environmental Management 270 (2020) 110827

Table-1
Annual Average growth rate.
Countries CO2 FDI EDU U GDP ENG

Bangladesh 5.0073 90.4342 4.9485 2.2157 3.5552 2.6343

Cambodia 5.1085 17.8288 3.4118 1.1643 5.6087 2.6617
China 5.4912 9.5025 3.9761 3.0527 9.2685 4.6469
Hong-Kong 1.5240 20.8626 0.9646 0.0201 2.8839 1.5490
India 3.8220 29.0343 2.1941 0.9908 4.8127 2.5300
Indonesia 4.0873 51.6056 2.4719 2.3205 3.3497 2.0992
Iran 3.4985 72.8617 2.1720 1.0778 2.1044 3.9017
Japan 0.3503 236.1468 0.2619 0.7742 0.8695 0.0532
S-Korea 3.1201 11.7660 0.2782 0.4565 4.5523 3.8866
Malaysia 4.3693 321.4774 1.5772 1.6662 3.5947 3.9869
Myanmar 7.2105 68.5036 4.2195 1.3071 8.1146 1.5530
Nepal 10.6612 329.9283 3.1194 3.0636 2.7026 1.2481
Pakistan 1.4965 10.1189 2.8775 0.9433 1.7144 0.8371
Philippine 2.0301 29.2355 0.9221 0.3666 2.1175 0.1604
Sri-Lanka 5.1012 16.8682 1.3748 0.0555 4.5658 2.0861
Thailand 4.6590 20.2365 6.8246 2.1714 3.4802 4.2453
Vietnam 7.7464 6.9832 4.6714 2.0484 5.4609 3.8433

Note: the rate of growth is determined through the use of original data; CO2 denotes carbon emissions; FDI explains foreign direct investment; EDU is education; U is
urbanization; GDP is per capita gross domestic product and ENG explains energy consumption.

Table-2 Table-3
Cross-sectional dependence. Unit roots test.
Veriables Statistic Prob. Level First-difference
Variables
lnCO2 0.496341 0.6197 LLC IPS LLC IPS
lnFDI 0.530834 0.5955
lnCO2 0.321 0.693 (0.755) 12.465*** 12.444***
lnFDIS 1.288085 0.1977
(0.374) (0.000) (0.000)
lnEDU 0.929220 0.3528
lnFDI 8.663 (1.000) 6.785 15.5027*** 15.277***
lnEDUS 0.018094 0.9856
(0.216) (0.000) (0.000)
lnU 0.605609 0.5448
lnFDIS 21.354*** 13.018*** 23.670*** 23.288***
lnGDP 1.257297 0.2086
(0.000) (0.000) (0.000) (0.000)
lnGDPS 1.835062* 0.0665
lnEDU 2.217 (0.983) 0.710 (0.761) 26.999*** 12.625***
lnENG 0.236887 0.8127
(0.000) (0.000)
Note: *, ** and *** show significance levels of 10%, 5% and 1% respectively. lnEDUS 0.67334 0.24505 12.186*** 5.073***
(0.749) (0.403) (0.000) (0.000)
lnU 0.496 (0.690) 0.894 4.637*** 9.967***
(CD) test introduced by Pesaran (2004). The CD test results helped to (0.185) (0.000) (0.000)
determine which generation unit root test was needed: either lnGDP 1.307 0.081 9.642*** 8.253***
first-generation or second-generation. Table-2 reveals the respective test (0.095) (0.467) (0.000) (0.000)
lnGDPS 0.5394(0.705) 3.102 9.328*** 7.883***
outcomes.
(0.999) (0.000) (0.000)
Test outcomes indicated the absence of cross-sectional dependence lnENG 1.176 0.236 (0.593) 12.065*** 11.726***
among variables, and the use of first-generation unit root test was rec­ (0.119) (0.0000) (0.000)
ommended. Over time different kinds of unit root tests have been
Note: *, ** and *** show significance levels of 10%, 5% and 1% respectively.
introduced to examine unit root properties. This study uses the Levin-
Using constant and trend variables the unit root tests are calculated.
Lin-Chu test (LLC) test (Levin et al., 2002) and Im-Pesaran-Shin (IPS)
test (Im et al., 2003). The second step was to investigate the integrating
levels of the analyzed variables. Table-3 reports the respective test Table-4
outcomes. Pedroni cointegration.
The LLC and IPS unit root test results indicated that all variables are Within dimension (panel statistic) Weighted Statistics
non-stationary (unit root) at level but they are converted into stationary Test Statistics Prob. Statistics Prob.
by taking the first difference. After determining the stationary levels of
Panel v-statistic 4.428 0.923 3.340 0.999
the series, we subsequently found the cointegration among the vari­ Panel rho-statistic 2.872 0.998 3.198 0.999
ables. This study applied the Pedroni cointegration technique intro­ Panel PP-statistic 4.624*** 0.000 5.162*** 0.000
duced by Pedroni (2004, 1999). Pedroni (2004) proposed different Panel ADF-statistic 8.268*** 0.000 8.695*** 0.000
Between dimension (individual statistic)
cointegration residual-based tests. The Pedroni cointegration test con­
Test Statistics Prob.
tains two groups, “within dimension” and “group dimension” tests, to
examine cointegration among the variables. The first group of tests takes Group rho-statistic 3.963 1.000
Group PP-statistic 7.109*** 0.000
an average of the results in an individual country while the second group
Group ADF-statistic 7.128*** 0.000
of tests pools the statistics along with the within-dimension. We accept
the null hypothesis for the case of no cointegration and reject the null Note: *, ** and *** show significance levels of 10%, 5% and 1% respectively.
Individual interception and individual trend to estimate cointegration among
hypothesis if there was cointegration. Table-4 reveals the test outcomes.
variables are selected.
Pedroni test outcomes showed that 6 out of 11 statistics rejected the
null hypothesis. This indicates that there is cointegration between car­
bon emissions, FDI, education, urbanization, income, and energy con­ Different approaches have been introduced to measure long-run
sumption. This study also applied Kao’s cointegration test for robustness elasticity in energy economics literature. It is vital to apply a suitable
and verified the cointegration results. Table-5 shows the Kao’s findings, estimation approach, driven by the nature of the data. Many studies
which explain the existence of cointegration among the variables. have used ordinary least square (OLS) to conduct long-run estimation.

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M.W. Zafar et al. Journal of Environmental Management 270 (2020) 110827

Table-5 environmental deterioration and industrial illness. Similar results were

Kao’s cointegration test. reported by Arvin et al. (2015) for G-20 economies and Salahuddin et al.
T-statistics Probability (2019) for Sub Saharan African economies.
Economic growth had a significant and positive influence on carbon
ADF 6.237*** 0.0000
Residual Variance 0.0055 emissions. When the GDP was boosted by 1%, there was a 0.188% in­
HAC Variance 0.0049 crease in carbon emissions. Asian countries primarily rely on fossil fuels
to energize their different sectors. When there was a rise in economic
Note: *** shows the 1% significance level.
activities, fossil fuel use increased rapidly, causing environmental
pollution. Although these countries are working hard to improve their
However, this study used Dynamic Ordinary least square (DOLS)
environmental standards, several years are needed to control environ­
introduced by Mark and Sul (2003), and Fully Modified Ordinary least
mental problems. Similar results were presented by (Ali et al., 2016;
square (FMOLS) developed by Pedroni (2000, 2001) to estimate the
Sulaiman and Abdul-Rahim, 2017; Zaidi et al., 2018a).
long-run elasticity between the variables. Recent studies have given
The relationship between energy consumption and carbon emissions
preference to the DOLS and FMOLS over OLS estimator because the
is positive and significant. When energy consumption rose by 1%, then
endogeneity and auto-correlation issues are solved using the FMOLS
carbon emissions also increased by 0.66%. The estimated coefficient of
estimator (non-parametric approach). In contrast, other problems are
energy consumption is significantly higher than other variable factors.
solved using the DOLS estimator (parametric method). Table-6 repre­
This means that energy consumption was the main driver in the
sents the long-run elasticity results estimated through DOLS and FMOLS
degrading environment quality by raising the emissions level in selected
techniques.
Asian countries. The empirical results, however, are not truly as
The relationship between inward FDI and carbon emissions is posi­
devastating as developing economies speed to their economic growth
tive and significant in Asian countries. These results support the
mostly by burning fossil fuel to maintain the energy supply to meet high
“pollution haven hypothesis” for the selected Asian countries. A 1% rise
energy demand. The economic challenges for Asian economies are
in inward FDI accelerates carbon emissions by 0.016%. FDI is considered
similar to other developing economies trying to improve the quality of
an essential driver of economic growth in developing economies; how­
life of their growing population and trying to provide better living
ever, these economies should focus on FDI inflows that provide clean
standards. Increased consumption of fossil fuels in the pursuit of these
and energy-efficient solutions to industrialization, and that helps to
economic and social goals has polluted the Asian countries. There has
improve the environment. Green and clean FDI boost economic growth
also been a side-effect of burning these fuels in the form of increased CO2
in developing countries and protects habitat from any negative impact of
emissions and other toxic gases. At the disaggregated level, Asian
economic expansion. These countries should focus on introducing clean
countries are responsible for more CO2 emissions from fossil fuels than
FDI and energy-efficient technology to reduce pollution in the host
any other region. This is mainly because less energy-efficient and oil-
countries. Our findings align with results reported by Seker et al. (2015)
based technologies are used at an industrial level. This produces less
for Turkey, Baek (2016) for ASEAN countries, and Sapkota and Bastola
output and consumes more fuel energy posing more environmental and
(2017a,b) for Latin American economies.
health hazards in the region along with many other socio-economic
Further, the link between education and carbon emissions was sig­
challenges. Similar results were reported by (Sapkota and Bastola,
nificant and positive. This link indicated that if education was increased
2017a) for Latin American countries and by Abdulrashid et al. (2018) for
by 1%, then carbon emissions increase by 0.406%. In Asian countries,
GCC countries.
when education increases, vocational opportunities are also increased.
This study also investigated the nonlinear relationship between the
These opportunities increase energy demand in these countries. More­
variables. Table-7 provides nonlinear results.
over, education improves income and living standards, also increasing
The linear term and square term (non-linear) of FDI had significantly
the demand for energy-based products. Primary energy sources of Asian
positive and negative effects on carbon emissions, respectively. These
countries include fossil fuels, which cause environmental deterioration
results confirmed the validity of the EKC hypothesis in assessing the
(Hill and Magnani, 2002). Similar findings were reported by (Managi
relationship between emissions and FDI. Most Asian countries are listed
and Jena, 2008; Sapkota and Bastola, 2017b), i.e., education is posi­
as emerging and under-developing. In the initial stage of economic
tively related to carbon emissions.
development, countries welcome pollutant-linked FDI from other
The assessed coefficient of urbanization is positive and significant
countries to maintain economic growth at the cost of environmental
concerning environmental quality. A 1% increase in urbanization raises
pollution. Therefore, FDI in these countries played positively in the
carbon emissions by 0.209%. These results confirm that urbanization is
earlier stages of economic growth; however, they played negatively in
not favorable from an environmental quality viewpoint. East Asia and
the later stages of growth. Appropriate policies are needed to control the
the Pacific region have had the highest levels of urbanization growth in
negative impact of FDI in such nations. These results align with results
the world. Migration towards cities creates many problems related to the
by Shahbaz et al. (2018) for France, but do not align with research by
environment including health issues, traffic problems, infrastructure
Pazienza (2015) for selected OECD countries and Jiang (2015) for
issues, pollution, and waste problems. On the other hand, urbanization
boosts economic growth and improves living standards. If urbanization
is not managed correctly, then Asian economies are expected to face Table-7
Non-linear relationship.

Table-6 Variables FMOLS DOLS

FMOLS and DOLS results. Coefficient t-statistics Coefficient t-statistics
Variables FMOLS DOLS LnFDI 0.0109*** 3.932060 0.0150** 2.066608
lnFDI^2 0.0067* 1.862542 0.0013*** 2.957934
Coefficient t-statistics Coefficient t-statistics
lnEDU 0.5032*** 5.458650 0.8387** 2.188364
LnFDI 0.016*** 4.252 0.015** 2.127 lnEDU^2 0.1090*** 8.050852 0.1000** 2.340709
lnEDU 0.406*** 13.042 0.382*** 5.200 lnU 0.1185** 2.212480 0.2586* 1.803624
lnU 0.209*** 3.593 0.362*** 9.5100 lnGDP 1.2247*** 21.02166 1.1516*** 8.642526
lnGDP 0.188*** 7.783 0.192*** 3.342 lnGDP^2 0.0740*** 21.35193 0.0682*** 8.304001
lnENG 0.661*** 17.096 0.611*** 7.190 lnENG 0.8487*** 32.58980 0.7821*** 12.62981

Note: *, ** and *** show significance levels of 10%, 5% and 1% respectively. Note: *, ** and *** show significance levels of 10%, 5% and 1% respectively.
Using SBC criteria, optimum lag length 1 was selected to estimate the results. Optimum lag length 1 was selected by using SBC to estimate the results.

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M.W. Zafar et al. Journal of Environmental Management 270 (2020) 110827

China.
Similarly, education positively affects CO2 emissions in the linear
term at a 1% significance level; however, when education is in the
nonlinear form, there is a negative and significant effect on carbon
emissions at a 5% significance level. These results show an inverted U-
shaped link between education and carbon emissions which can be
referred to as an Education Kuznets Curve. When education rises in a
country, it creates vocational opportunities; as such, there is an increase
in energy consumption via nonrenewable sources. The rise in energy
consumption degrades environmental quality. However, once a specific
education level is achieved in a country, ecological knowledge and
awareness also increase. People and industries start using environmen­
tally friendly technology and reduce the use of nonrenewable energy. As
a result, CO2 emissions start declining, advancing sustainable develop­
ment in that country. This study aligns with research by Balaguer and
Cantavella (2018) for Australia.
The results show that the EKC hypothesis between education and
CO2 emissions was valid for Asian countries. Economic growth is posi­
tively associated with carbon emissions; in contrast, the square of eco­
nomic growth is negatively associated. This validates the presence of
EKC in these countries. The EKC appears when the decisive role of
economic growth in reducing the pollution level begins. For example,
this may occur when energy-efficient technology solutions are adopted
into production, and the reliance on fossils fuels decreases. Moreover,
economic growth increases, living standards improve due to rising in
income per capita and education per capita. The rise in the awareness
level of the general population enhanced the demand for cleaner tech­
nologies, promoting cross-border partnerships. We agree with the ar­
guments of Dinda (2004): education and higher income levels enable a
clean and green economy; however, it takes time for savings to complete
the transformation between phases. Therefore, reaching a specific eco­
nomic growth threshold point is very important to attain sustainable
development goals. Our empirical results are consistent with Shahbaz
et al. (2018) for France; Sinha and Shahbaz (2018) for India; and
Tamazian et al. (2009) for Brazil-Russia-India-China-and South Africa
(BRICS) countries.
4.1. Panel granger causality
We employed the Vector Error Correction Model (VECM) and
Granger causality approaches to assess the association between carbon
emissions, FDI, education, urbanization, income, and energy consump­
tion. The methodological steps to arrive at the causal inferences are
described by Engle and Granger (1987). Firstly, we estimated the
long-run coefficients in the equation to attain the residuals. Subse­
quently, we determined short-run causality by considering the estimated
residuals, generated by the first step. The VECM Granger causality is
described as follows:
impacted carbon emissions. This means that FDI, as assessed using
Granger causality, causes carbon emissions. Comparable outcomes are
reported by Linh and Lin (2014) for Vietnam and by Salahuddin et al.
(2018) for Kuwait. One-way causality is also identified linking income to
carbon emissions. These results are consistent with Al-mulali and Foon
(2013) for GCC countries and with Salahuddin et al. (2018) for Kuwait.
Similarly, energy consumption, also assessed using the Granger causal­
ity, causes CO2 emissions. This finding is supported by the findings of W.
Ali et al. (2017) for Malaysia and Saboori et al. (2017) for South Korea.
The relationship between FDI and economic growth is bidirectional
meaning that they can both impact each other in the same way. The
same conclusion is reached by Al-mulali (2012) in the context of the
Middle East nations and by Lau et al. (2014) for Malaysia.
This result indicated that economic growth, assessed using the
Granger causality, impacted education; however, education did not
impact income in return. Bano et al. (2018) also reported bidirectional
causality between education and income for Pakistan. Similarly, energy
consumption, assessed using the Granger causality, impacts education.
Our results differed from Bano et al. (2018) for Pakistan, in terms of the
bidirectional energy-growth nexus. Our test outcomes verified the hy­
pothesis that feedback occurred between income and energy consump­
tion. This segment of the outcomes falls in line with the findings of Mirza
and Kanwal (2017) for Pakistan, and Salahuddin et al. (2018) for
Kuwait.
In the long-run, bidirectional causal associations are found for CO2-
FDI, CO2-energy, and income-CO2 nexus. Zafar et al. (2019) and Tang
and Tan (2015) reported a similar relationship between the USA and
Vietnam, respectively. However, Lau et al. (2014) showed the opposite
direction of results between CO2-FDI and income-CO2 nexus for
Malaysia. The feedback causality is also found between FDI and eco­
nomic growth; and between energy consumption and economic growth.
Similar results are reported by Zafar et al. (2019) and Salahuddin et al.
(2018) for the USA and Kuwait, respectively. On the other hand, the
unidirectional link between FDI and income is reported by Hakimi and
Hamdi (2016) for Morocco and Tunisia. Furthermore, there is a unidi­
rectional causality running from education and urbanization to the
remaining model parameters. The similar results found by Liu and Bae
(2018) for China and contradictory results probed by Bano et al. (2018)
for Pakistan.
5. Conclusions
The primary objective of the Paris Agreement was to control global
warming within a 1.5–2 � C increase from pre-industrial level. The
member countries agreed to sign and expressed their willingness to
support the global agenda and achieving sustainable development goals.
All the endeavors were undertaken to work toward social, economic,
and environmental improvements. Still, the withdrawal of the US and
non-binding nature of NDCs posit a question for the effectiveness of this

2 3 2 3 2 3 2 3 2 3 2 3
ΔlnCO2;it δ1 θ11p θ12p θ13p θ14p θ15p θ16p ΔlnCO2;t p α1 μ1it
6 ΔlnFDIt 7 6 δ2 7 6 θ21p θ22p θ23p θ24p θ25p θ26p 7 6 ΔlnFDIt p 7
7 6 6 α2 7 6 μ2it 7
6 7 6 7 q 6 7 6 7 6 7
6 ΔlnEDUit 7 6 δ3 7 X 6 θ31p θ36p 7 6 7 6 7 6 μ3it 7
6 7¼6 7þ 6 θ32p θ33p θ34p θ35p 7 � 6 ΔlnEDUt p 7 þ 6 α3 7ECTit 6
1 þ6
7 (4)
6 ΔlnUit 7 6 δ4 7 6 7 6 7 6 α4 7 7
6 7 6 7 p 1 6 θ41p θ42p θ43p θ44p θ45p θ46p 7 6 ΔlnUt p 7 6 7 6 μ4it 7
4 ΔlnGDPit 5 4 δ5 5 4 θ51p θ52p θ53p θ54p θ55p θ56p 5 4 ΔlnGDPt p 5 4 α5 5 4μ 5
5it
ΔlnENit δ6 θ61p θ62p θ63p θ64p θ65p θ66p ΔlnENt p α6 μ6it

forum. In such a scenario, the present study investigated the effects of

In his expression Δ is used to denote the first difference and p shows foreign direct investment and education on carbon emissions in the
the lag length. We applied SIC to find the optimal lag length of 1. Test presence of utilization of commercial energy, urbanization, and afflu­
outcomes are explained in Table-8. ence for selected Asian countries. This study also assessed the non-linear
During short-run, unidirectional causality originated from FDI impact of FDI, income, and economic growth on environmental quality

8
M.W. Zafar et al.
Table 8
Panel Granger causality.
ΔlnCO2 ΔlnFDI ΔlnEDU
ΔlnCO2 – 3.9667** (0.01973) 1.0702 (0.3439)
ΔlnFDI 0.1451 (0.8649) – 1.7683 (0.1720)
ΔlnEDU 0.9943 (0.3709) 0.3897 (0.6775)
ΔlnU 1.7425 (0.1764) 0.9734 (0.3787) 0.1101 (0.8957)
ΔlnGDP 1.4316 (0.2402) 4.3426** (0.0137) 1.1793 (0.3086)
ΔlnENG 0.7413 (0.4771) 0.7698 (0.4638) 0.1426 (0.8671)
Note: Δ denotes first difference operator; ***, ** and * represent significance levels of 1%, 5% and 10% respectively. Parenthesis contains P-values whereas brackets
represent t-values.
over 1990–2018. First, a cross-sectional dependence test was conducted;
then, LLC and IPS unit root methods were used to check unit-roots. The
Pedroni panel cointegration technique was used to check long-term
cointegration among study variables. The long-run elasticities were
investigated using DOLS and FMOLS methods.
The results of FMOLS and DOLS methods indicated that FDI and
education are associated with an increase in carbon emissions intensity.
Similarly, urbanization significantly positively impacts carbon emis­
sions. Income and energy consumption stimulate carbon emissions. The
nonlinear results confirm the validity of the EKC hypothesis with respect
to FDI, education, and income. Granger causality results indicate the
presence of a bidirectional association between carbon emissions, FDI,
utilization of commercial energy, and income in the long-run at 1% and
5% significance levels. A unidirectional relationship is found running
from education and urbanization to emissions, FDI, income, and energy
consumption.
The results indicated that FDI is also responsible for increasing
environmental pollution. Policies should focus on attracting clean and
energy-efficient technologies through FDIs. Policymakers should be
interested in attracting investments that will contribute largely to sus­
tainable development. Similarly, policymakers should be keen at
encouraging FDI inflows into technology-intensive and environment-
friendly industries. Doing this has the potential to improve environ­
mental wellbeing while promoting economic growth. Bold steps would
include stopping industries that generate high levels of pollutants, such
as cement and gypsum. Monitoring mechanisms also need government
attention. Polluting firms should be regularly checked to ensure they
meet environmental standards. Strong performers should be provided
incentives and high emitters should be penalized. New investment
proposals should also include social costs related to the environment.
Moreover, the Asian governments should provide financial incentives to
multinational organizations that bring modern technology that miti­
gates environmental emissions and protects the host country’s envi­
ronment. Carbon taxes could be applied to high emitters. Asian
governments should also encourage more FDI to strengthen their
economies, keeping environmental regulations intact and competitive.
The results also indicate that education may increase carbon emis­
sions in a linear form; however, the nonlinear education effect is nega­
tive. Data for the last decade showed that global emissions have
decreased due to increased education and awareness programs. Educa­
tion helps countries prosper in economic terms and is vital to achieving a
sustainable environment. Education establishes a good stock of human
capital, allowing the country to address problems innovatively. The
policymakers of Asian economies should increase the education budget
in country-level annual budgets. Environmental topics should also be
included in syllabi in schools and colleges. Public awareness programs
should be launched to keep the environment safe. Education is the best
way to combat the continuously increasing level of CO2 emissions in the
environment. Education helps sustain the pattern of development and
improves ecological value utilizing energy efficiency. Education also
impacts environmental quality indirectly, such as improved education
brings technology adoption and innovation in the country which can
reduce the level of environmental pollution.
The outcomes also indicate a direct association between
Journal of Environmental Management 270 (2020) 110827
ΔlnU ΔlnGDP ΔlnENG ECT-1
1.5418 (0.2153) 3.4324** (0.0333) 7.2805*** (0.0008) 0.021** [2.594]
0.1858 (0.8305) 3.8918** (0.0212) 0.7318 (0.4817) 0.070*** [-3.383]
0.2138 (0.8076) 4.2325** (0.0152) 3.2128** (0.0413) 0.002 [-0.849]
– 0.3982 (0.6718) 0.2502 (0.7788) 0.000 [-0.811]
0.8669 (0.4211) – 4.3271** (0.0139) 0.008*** [2.668]
1.4493 (0.2360) 2.6603** (0.0712) – 0.010** [-2.261]
urbanization and carbon emissions. However, policies are needed to
manage urbanization appropriately. The increasing level of urbaniza­
tion creates many hurdles for economic growth and environmental
quality. The governments should develop smart cities to increase envi­
ronmental quality. First, the government should also develop suburban
areas by providing urban resources to meet basic needs to rural areas to
attain environmental quality. If all facilities are available in suburban
areas then the government should levy some taxes on migration to urban
areas. New colleges and universities should be planned in rural areas to
discourage migration to cities. Asian country governments could also
shift some industries from major cities to rural areas. This step would
also slow migration from rural areas to big cities.
The results also suggest that energy consumption from fossils fuels is
mainly responsible for environmental degradation, highlighting the
need for Asian countries to invest in green infrastructure. Besides, a
change in attitudes towards energy consumption is needed, and poli­
cymakers in these countries should introduce policies that increase en­
ergy efficiency. Asian countries should increase the share of renewable
energy as a proportion of total energy, even though most Asian countries
currently depend on fossil fuel energy. Green energy could play a sig­
nificant part in mitigating ambient air pollutions and could also help
protect economic growth from the unpredictability of crude oil prices.
The non-linear impact of income is negative and significant, indicating
that if income reaches a specific point, it may mitigate environmental
emissions. The policymakers should focus on all indicators of economic
growth which cause environmental degradation. Appropriate policies
regarding FDI, education and urbanization should be introduced to in­
crease the speed of economic development with minimal environmental
damage.
This study focused on exploring the effects of FDI, education, and
urbanization on environmental quality in Asian countries. Future
studies could account for the institutional qualities of these Asian
countries, particularly those hindering the educational system and
environmental regulations in these countries.
CRediT authorship contribution statement
Muhammad Wasif Zafar: Conceptualization, Formal analysis,
Writing - original draft. Quande Qin: Conceptualization, Writing - re­
view & editing, Supervision. Muhammad Nasir malik: Formal analysis,
Writing - original draft. Syed Anees Haider Zaidi: Writing - review &
editing.
Acknowledgments
The financial supports of this study are from the National Natural
Science Foundation of China (71871146), and the Ministry of Education
of Humanities and Social Science project of China (Nos. 18YJA630090).
Appendix A. Supplementary data
Supplementary data to this article can be found online at https://doi.
org/10.1016/j.jenvman.2020.110827.
9
M.W. Zafar et al. Journal of Environmental Management 270 (2020) 110827

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