Asymmetric Effects of FDI and Energy Use on Environmental Degradation in Indonesia Using a Nonlinear Autoregressive Distributed Lag Approach

Authors

  • Putri Maulidar * Energy and Green Economics Unit, Graha Primera Saintifika, Aceh Besar 23371, Indonesia. https://orcid.org/0009-0004-1977-5831
  • Ricardo Marcão NECE-UBI, Universidade da Beira Interior, 6201-001 Covilhã, Portugal. ISLA Santarém - Polytechnic University, 2000-029 Santarém, Portugal. https://orcid.org/0000-0003-3277-3078
  • Muksalmina Muksalmina Department of Management, Faculty of Social Sciences and Education, Universitas Ubudiyah Indonesia, Banda Aceh 23114, Indonesia. https://orcid.org/0009-0004-3464-0513
  • Ar Razy Ridha Maulana Statistics of Aceh Province, Banda Aceh 23121, Indonesia.

https://doi.org/10.48313/iee.v2i1.68

Abstract

This study examines the asymmetric effects of Foreign Direct Investment (FDI), economic growth, domestic capital formation, Renewable Energy Consumption (REC), and Fossil Energy Consumption (FEC) on carbon dioxide (CO2) emissions in Indonesia over the period 1970-2021. Using the Nonlinear Autoregressive Distributed Lag (NARDL) approach, the study examines whether FDI contributes to environmental degradation via the Pollution Haven Hypothesis (PHH) or improves environmental quality via the Pollution Halo Hypothesis. The results reveal strong evidence of asymmetric short-run and long-run relationships among the variables. Positive FDI shocks significantly increase CO2 emissions, while negative FDI shocks reduce emissions, indicating that FDI inflows in Indonesia are more consistent with the PHH. The findings further show that domestic capital formation and REC contribute to reducing CO2 emissions, whereas FEC remains a major driver of CO2 emissions. Economic growth is found to reduce emissions in the long run. These results highlight the importance of improving the environmental quality of FDI, strengthening green investment policies, accelerating renewable energy development, and reducing dependence on fossil fuels. The study provides policy-relevant evidence to align Indonesia’s investment, energy, and environmental strategies toward sustainable, low-carbon development.

Keywords:

Pollution haven, Pollution halo, Foreign direct investment, Energy consumption, Environmental quality

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2026-03-14

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Vol. 2 No. 1 (2026): Innovations in Environmental Economics (IEE)

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Asymmetric Effects of FDI and Energy Use on Environmental Degradation in Indonesia Using a Nonlinear Autoregressive Distributed Lag Approach. (2026). Innovations in Environmental Economics , 2(1), 46-66. https://doi.org/10.48313/iee.v2i1.68

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