Existing research on the impact of foreign direct investment (FDI) on environmental quality lacks consensus. This paper investigates a potential structural break in the FDI-environment relationship based on economic scale. Using panel threshold estimation for 67 countries across different income groups, with GDP as the threshold, the results show a shift in FDI's impact on carbon emissions from positive to negative at varying income levels. This is confirmed by robust tests. Below a GDP per capita of $541.87, FDI positively impacts carbon emissions; above $46515, the impact turns significantly negative. The paper advocates for raising income levels to leverage FDI's emission-reducing potential.

Qiang Wang, Ting Yang, Rongrong Li, Xiaowei Wang