Foreign direct investment, financial development, energy consumption, and air quality: A way for carbon neutrality in China

ABS T R A C T Air quality is a social, economical, and health issue for fast-developing countries such as China. Due to the overuse of nonrenewable energy, industrialization, and the population put pressure on air quality, which seri-ously threatens public health and economic growth. This study focuses on air quality and also aims to investigate the short-and long-run correlation between foreign direct investment, energy consumption, domestic credit, and financial development. The Autoregressive distributed lag model and the Granger non-causality test were carried out over the period from 1985 to 2018. The main findings of this study show a positive and significant long-run impact of energy consumption on air quality. In addition, domestic credit and financial development similarly show a significant positive short-run association with air quality. Moreover, the unidirectional causality corre-lation running from foreign direct investment and domestic credit to air quality was concluded by the Granger non-causality test. Considering the empirical analysis, this study suggests that domestic financial institutions should offer credit to industries at a low-interest rate in order to help them to switch from non-renewable to renewable energy consumption towards the promotion of sustainable and healthy air quality.