Investigating the Effect of Foreign Direct Investment on Environmental Pollution in MENA Countries

Environmental pollution and the factors affecting it are a topical issue in economic analysis. In developing countries, environmental pollution is rising alongside with economic growth while being regarded as an inferior or at least a normal commodity. Capital is the main engine of economic growth and development. Hence, developing countries have always been attempting to attract investment. Foreign direct investment is considered to be the key factor in the transfer of capital, which expands the development of the global production network, accelerating the process of economic growth and development in the host country. Since the foreign direct investment leads to more use of energy resources and natural resources, it is therefore expected to have a significant relationship between foreign direct investments and the environmental pollution. It follows therefore that the study of the relationship between these two variables is of particular importance. The prime objective of this research is to investigate the effect of foreign direct investment on environmental pollution in Iran and the selected countries of the MENA during the years 1990 to 2011 with the panel data econometric approach. The results demonstrate that there is a positive and significant relationship between carbon dioxide emissions and foreign direct investment in the countries under study.