The Relationship Between Foreign Direct Investments and Carbon Dioxide Emissions: The Case of Turkey

In this study, the causality relationship between FDIs and CO2 emissions in Turkey is investigated by using annual data which spans from 1974 to 2012. To find whether there is a causal relationship, unit root tests, co-integration analysis and VEC based causality tests are employed. The significance of this causality, along with the significance of other causal relationships that are found among other economic variables in the model, is determined by using variance decomposition and impulse-response analyses. Results indicate that there is a long-run uni-directional causality running from FDI to CO2 emissions. However, besides the fact that this causality is not that strong, it has a decreasing effect on emissions. FDI inflows to Turkey do not deteriorate the environment, and on the contrary, they create an emission decreasing effect. Additionally, by taking other significant causalities into consideration, various policy recommendations are proposed.