The Effect of foreign direct investment on carbon productivity in ASEAN-5 countries

Abstract

This paper uses stochastic frontier model to estimate the effect of foreign direct investment on carbon productivity in ASEAN-5 countries, namely Thailand, Indonesia, Malaysia, Singapore, and the Philippines. The panel data covers the period 1990 – 2013. Labor participation rate, urbanization rate, industrial structure, energy efficiency and trade openness are used to explain the carbon productivity. The results show that foreign direct investment has a negative impact on carbon productivity in Indonesia, Singapore, Malaysia and Philippines, meaning that carbon productivity will decline with the increasing of foreign direct investment. However, foreign direct investment has a positive impact on carbon productivity in Malaysia, which means the carbon productivity improves with increasing foreign direct investment. According to the result, it further suggests: (1) strengthen supervision over existing foreign-invested enterprises and related production processes. Further review foreign investment and ban production with high pollution and high energy consumption; Alternatively, further testing of the emissions of relevant polluting enterprises. Thereby reducing the emissions of carbon dioxide and other related pollutants; (2) further increase investment attraction, establish preferential policies for enterprises, and actively attract investment from foreign enterprises. Therefore, consider improve the carbon productivity should pay attention both attract foreign direct investment and decline the carbon dioxide emissions.