Trade, FDI, and CO2 emissions nexus in Latin America: the spatial analysis in testing the pollution haven and the EKC hypotheses

Americas have a mix of developing and developed economies. Thus, the pollution haven hypothesis (PHH) is expected in the developing countries of Latin America. Using the spatial Durbin model, the present study investigates the effects of foreign direct investment (FDI), exports, and imports on emissions in 18 Latin American countries from 1970 to 2019, including economic growth and the financial market development (FMD) in the model. The environmental Kuznets curve (EKC) is validated, and the region is found in the first stage of the EKC. Hence, Latin American economic growth has environmental consequences. Exports have a positive impact on home and neighboring countries' CO2 emissions and pollute the whole region, which validates the PHH. Imports could not affect the home economies but have positive environmental effects on neighboring economies and the entire Latin American region. The negative coefficient of imports is larger than the positive coefficient of exports. Therefore, the net effect of trade is environmentally pleasant in Latin America. Moreover, FDI has a statistically insignificant effect and the impact of FMD is positive on CO2 emissions. The study recommends caring the exporting, financial, and economic activities for a sustainable environment in Latin America.