The Impact of Foreign Direct Investment on Environmental Pollution in Gulf Countries: Evidence from Panel Data (2004-2023)

Abstract

This study examines the environmental impact of foreign direct investment (FDI) in Gulf countries using panel data from 2004 to 2023. Based on the Environmental Kuznets Curve (EKC) framework and the Pollution Haven and Pollution Halo hypotheses, the analysis explores the scale, structural, and technological channels through which FDI influences environmental quality. A two-way fixed-effects model is employed, complemented by robustness and heterogeneity analyses. The results reveal a nonlinear relationship between economic growth and environmental quality, supporting the EKC hypothesis. While baseline estimates suggest that FDI is associated with improvements in environmental quality, extended results indicate that its overall effect is environmentally adverse, driven primarily by scale expansion and insufficient green technological spillovers. Significant cross-country heterogeneity is identified, with stronger institutional capacity mitigating negative environmental impacts. These findings highlight the importance of directing FDI toward environmentally sustainable sectors and strengthening regulatory frameworks to promote green economic transformation.