Innovation, foreign direct investment (FDI), and the energy–pollution–growth nexus in OECD region: a simultaneous equation modeling approach

The paper proposes a new perspective in the environmental and resource economics literature by examining innovation (measured by R&D expenditures), FDI (measured by country–country technology transfer), and energy–environment–growth nexus. Using simultaneous equation modelling (SEMs), three econometric functions were formulated for production, energy consumption, and environmental pollution with GDP per capita, energy consumption, and CO 2 emissions (CO 2 e) as dependent variables for twenty-four OECD economies for the period 1993 to 2014, respectively. The results failed to support the Environmental Kuznets Curve (EKC) hypothesis in the OECD economies. At the same time, a two-way causality was observed between GDP per capita and energy consumption per capita, indicating that the pollution has not yet reached the maximum threshold. Moreover, the results unveiled that fossil-fuel consumption, innovation, and FDI were the primary sources of CO 2 e. The paper offers important implications for academics, policymakers, and identifies avenues for future research.