The impact of FDI on CO2 emission in a small island developing state: A cointegration approach

This paper examines the long run and short run impact of FDI (disaggregated into manufacturing and non- manufacturing sector), on CO2 emission in Mauritius. In this study the bounds testing approach to cointegration is used. For instance, the Autoregressive Distributed Lag (ARDL) model is used on time series data over the period 1980 to 2012. The main findings of this study show that foreign investment in the manufacturing sector is harmful for the environment whereas FDI in non-manufacturing sectors does not really affect the environment. Moreover, an increase in growth is as well seen to increase the level of CO2 emission. Energy use in the country also proved to result in an increase in CO2 emission. The findings further confirm the stability of the model for the small island economy of Mauritius.