Foreign direct investment and pollution control’s effects on the environmental quality in MENA countries

By increasing pollution and environmental crises, governments have set out a set of environmental policies and regulations aiming at improving environmental quality. The effectiveness of environmental regulations is a problem that many policymakers and governments ignore. The purpose of this study was to answer the question of how far the changes in environmental policies and regulations can affect pollution control and, on the other hand, whether foreign direct investment control rules can be effective in reducing emissions of pollutants?

The data used in this study was panel type and for 18 countries (MENA region) in the period 1990-2017. In this study, three indicators of wastewater,  emissions, and greenhouse gas emissions were used to determine the environmental quality. The procedure used by the GMM method was first-order differential. The advantage of this method is counteracting the data latent endogenousity and allow for the dynamism for estimates. Sargan test in this model was a test for the detection of constraints. Its zero assumption shows the over-identified limitations in the GMM model.

The results of the study were evaluated in three basic models. The first model was determined based on four variables i.e. industrialization, foreign direct investment, environmental laws and regulations, and rules for the control of foreign direct investment. In models 2 and 3, respectively, the effects of population and GDP variables and the second power of the GDP test population effect and Kuznets' environmental theory were reviewed. The application of environmental regulations and foreign direct investment can properly be a factor in controlling the emission of air pollutants, but the effect of environmental laws on the release of pollutants was positive and increased the emission levels of these pollutants. The sign of population effect coefficient in the studied years in this study was obtained with different signs.  The effect of all environmental indicators in the model is significant, but the effect of industrial effluents among pollutants will make the environmental effect uncertain..  Foreign direct investment is a very important factor in the emission of pollutants after the emission of wastewater and other greenhouse gases. The variable coefficient of FDI for all three models for wastewater was significant at 1% level and equal to 1.481, 1.371, and 2.306 in models 1 to 3, respectively.

The negative effect of the foreign direct investment on environmental quality in the MENA region was confirmed, which established the truth of the hypothesis of pollution in the region. On the other hand, the impact of the population on wastewater and  emissions has positive effects on the quality of the environment. Policies and laws focus on environmental control and foreign direct investment, reducing the level of pollutants and improving the quality of the environment.