THE TWO-WAY LINKAGE BETWEEN FOREIGN DIRECT INVESTMENT AND ENVIRONMENTAL POLLUTION IN VIETNAM - FROM SECTORAL PERSPECTIVES

Cao Thi Hong Vinh

Abstract

Abstract
Two-way linkage between foreign direct investment (FDI) and environmental pollution is
a topic that has attracted a great deal of attention of economists. Nevertheless, there are
few quantitative studies which indentify the relationship between FDI and environmental
pollution using sectoral data. Utilizing that kind of data with the General Methods of
Moments (GMM) regression method, this paper affirms the existence of two-way linkage
between FDI and environmental pollution. Specifically, FDI is found to cause an increase
in the level of pollution, which is measured by the emission of greenhouse gases (GHG) for
each economic sector, while the higher degree of pollution also boosts up the amount of FDI
flows into Vietnam. Besides, the paper finds that: (i) There is a Kuznets Curve’s inverted
U-shaped relationship between pollution level and economic growth in general but not for
the sector of energy; (ii) Energy sector experiences a rise in the degree of pollution while
attracting a large amount of FDI;(iii) Within the energy sector, the sub-sector of production
& distribution of electricity, gas and water has received a limited value of FDI. Based on
these results, some policy recommendations will be made for Vietnamese government to
attract more FDI but still reduce pollution levels..
Key words: Foreign Direct Investment (FDI), Environmental pollution, Economic sector.
Date of submission: 22rd December 2015 – Date of approval: 10th February 2016.