Beyond direct links: synergistic roles of FDI, trade and renewable energy in shaping CO₂ emissions in commonwealth nations Available to Purchase

This study aims to examine both the direct and interactive effects of Foreign Direct Investment (FDI) on carbon emissions (CO₂) in Commonwealth nations, while incorporating renewable energy consumption, economic growth and trade openness into the analytical framework.

Panel data for 56 Commonwealth countries covering the period 2011–2020 were obtained from the WDI and IMF databases. After testing for cross-sectional dependence and stationarity using second-generation panel techniques, four model specifications were estimated. The Driscoll–Kraay standard error approach was employed to address heteroskedasticity, serial correlation and cross-sectional dependence. Interaction effects were incorporated. Feasible Generalized Least Squares estimation was further used as a robustness check.

The findings reveal that FDI has no significant direct effect on CO₂ emissions in Commonwealth countries. However, its interaction with renewable energy, economic growth and trade openness significantly influences emissions. Economic growth increases CO₂ emissions. Regionally, FDI reduces emissions in Africa but shows no significant effect in Asia. Robustness tests confirm these results.

FDI is not inherently environmentally harmful; its impact depends on the presence of supportive policies and structural conditions. The region-specific findings indicate that the positive relationship observed in Africa may be attributed to its relatively lower level of economic globalization compared to developed economies. In contrast, in Asian economies, rapid industrialization combined with weak regulatory frameworks constrains the environmental benefits of FDI, reflecting the presence of pollution haven effects. Furthermore, policymakers should focus on promoting green FDI, expanding renewable energy, reinforcing environmental governance and supporting sustainable trade along with low-carbon technologies to achieve environmentally sustainable growth in Commonwealth nations.

This study contributes to the literature by jointly examining the direct and moderating effects of FDI on carbon emissions across 55 Commonwealth countries using second-generation panel techniques and the Driscoll–Kraay estimator. The study provides new evidence on how FDI interacts with renewable energy, economic growth and trade openness to shape environmental outcomes.