Foreign Capital Inflows and Environmental Degradation: Evidence from Developing Countries


  • Muhammad Zahir Faridi Professor, School of Economics, Bahauddin Zakariya University Multan, Pakistan
  • Muhammad Ramzan Sheikh Associate Professor, School of Economics, Bahauddin Zakariya University Multan, Pakistan.
  • Shazia Khalid PhD Scholar, School of Economics, Bahauddin Zakariya University Multan



Environmental Degradation, Foreign Inflows, Developing Countries


The primary focus of this study is to investigate the impact of foreign inflows of capital on environmental degradation in developing countries. The study is based on panel data for the period 1980 to 2017. The techniques like Pedroni test of co integration, panel ARDL and Granger causality are used for data analysis. The outcomes show that total population, affluence, technology, and foreign inflows are positively related to environmental degradation while agricultural land is negatively associated with environmental degradation although the influence of total population and technology on environmental degradation is found to be statistically insignificant in the long run. In the short run total population, foreign inflows, and agricultural land area are found to be inversely related to environmental degradation however their impact is statistically insignificant. Granger causality analysis shows that there is a unidirectional causality between total population and environmental degradation, unidirectional causality between GDP and environmental degradation, and unidirectional causality between industrial production and environmental degradation. No causality is observed between foreign inflows and environmental degradation, agricultural land area, and environmental degradation. It suggested that developing economies should adopt the policies for population control and use the foreign resources in such a way that environmental safety is maintained.