Energy consumption, FDI, and urbanization linkage in coastal Mediterranean countries: re-assessing the pollution haven hypothesis

Foreign direct investment (FDI) and the consumption of non-renewable energy have been on the increase in the coastal Mediterranean countries (CMCs) over the last few decades. Both trigger growth, but the environmental impact could be far-reaching as environmental distortions are mainly human-induced. This study examines the environmental issues facing CMCs. Specifically, we investigate whether the pollution haven hypothesis holds for CMCs. We employ a quantile panel data analysis for CMCs to account for heterogeneity and distributional effects of socioeconomic factors. The result reveals that the influence of FDI on environmental degradation is a function of the indicators utilized and also depends on the initial levels of environmental degradation. The results suggest that the pollution haven hypothesis does not hold for CMCs. However, we also find that energy consumption significantly increases environmental degradation for all indicators and across the observed quantiles. The effects of economic growth and urbanization on the environment were mixed for the different indicators and across quantiles. We recommend that it is pertinent for CMCs to limit their “dirty” energy sources and substitute them with renewables to promote environmental sustainability.