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Emerging countries have growth enthusiasm to catch upwith the level of developed countries. But insufficient domestic savings andthus low capital accumulation needs foreign direct investment (FDI) inflows.So, countries apply different kinds of incentives to attract FDI to theirhomeland. Those incentives might be tax reduction, fewer legal obligations,establishment facilities, and even loose environmental policies. But heavilydependence on inflows might turn the host country to pollution heaven forforeign investors by loose environmental policies. On the other side,dependence also causes currency volatility and a high balance deficit and thus,countries become financially fragile. This ‘fragility’ term is firstly used forfive countries. Coined byStanley in 2013, the term “fragile five” represents the vulnerability of fiveemerging market economies, namely: India, South Africa, Brazil, Indonesia, andTurkey, to emphasize their dependence on FDI. Their incentives and facilitiesfor foreign capital accumulation could take in environmental insensitiveinvestments. Furthermore, they could also become fragile to external shocks. FDI is the main polluting factor for environmentalpolluting and also might be the center of the being financially fragile. Thispaper contributes to the literature by analyzing the link between PHH andfragility in the context of FDI-emissions for fragile five countries.Furthermore, the paper also shows whether countries' classifications by somesimilarities/aspects are sufficient to make specific groups. For this purpose,autoregressive distributed lag (ARDL) co-integration analysis is run to catchup on the relationship between fragile five and pollution heaven hypothesis.The result shows that the pollution haven hypothesis(PHH) is valid only in Indonesia and Turkey for the long term. However, theincreasing effect of FDI on environmental pollution is more powerful in Turkey.Brazil and India have a long-runrelations but FDI is not statistically important. And South Africa does notshow long-term pattern. In a nut shell, all fragile five are not also pollutionheaven. Moreover, a financial similar outlook does not mean that environmentalattitudes look like each other. |
