Determinants of foreign direct investment in environmental relevant sectors: the case of OECD countries

Almost all nations are required to be concerned about climate change goals which are commonly agreed by the international community under the Paris Agreement. There are numerous researchers about total FDI or FDI in general and their environmental impact, however, green or low carbon FDI seem to be ignored. Studying green or low-carbon FDI is an attempt to combine economic growth and climate change goals. A panel sample, which covers 31 OECD countries in the period of 2005 – 2018 is used for estimation. The research aims to study the effectiveness of GDP per head, environmental taxes, feed-in tariffs and government spending on R&D for energy efficiency on inward green FDI stock, which is measured as total value of FDI inward stock in environmental relevant sectors . This paper applies basic descriptive statistics and panel data regression models, such as Pooled OLS, Fixed Effect, Random effect and then uses BP test and Hausman test to conclude that fixed effect model is the best one. Results show that economic activities and environmental policies play a crucial role in defining green FDI in OECD nations. All of these are proved to be correlated with higher attraction of FDI.