Re-examining the growth–emission relationship assessing threshold effects of trade, fdi, and renewable energy in Asean

Abstract

This study aims to test the Environmental Kuznets Curve (EKC) hypothesis in five developing ASEAN countries (Indonesia, Malaysia, the Philippines, Thailand, and Vietnam) from 1990 to 2024. It also analyses the impacts of economic integration (trade, FDI), renewable energy, urbanisation, and industrialisation on per capita CO₂ emissions. Using panel data from the World Development Indicators, estimations are performed using the Fixed Effects (FE) model and the Instrumental Variable Two-Stage Least Squares (IV-2SLS) regression. The results confirm the existence of an EKC relationship between income and per capita CO₂ emissions, with a clear turning point. Trade and FDI have a non-linear (inverted U-shaped) impact on emissions, with a turning point at a certain integration threshold. Additionally, the share of renewable energy reduces CO₂ emissions, while industrialisation increases emissions, and urbanisation has an emission-reducing effect. These findings provide a scientific basis for policymaking: the ASEAN- 5 should pursue green growth by promoting clean technologies and renewable energy development, while appropriately managing the urbanisation process to minimise pollution. Research purpose: Re-examine the growth–emission nexus in ASEAN-5 by testing the Environmental Kuznets Curve (EKC) and quantifying threshold (nonlinear) effects of trade openness, FDI, and renewable energy on per-capita CO₂ emissions. Research motivation: ASEAN-5 has experienced rapid growth alongside rising CO₂, while regional evidence on EKC and the roles of trade, FDI, and renewables remains limited and mixed; policymakers require context-specific evidence to reconcile development with decarbonization. Research design, approach, and method: Balanced annual panel for Indonesia, Malaysia, Philippines, Thailand, and Vietnam, 1990–2024 (N=176). Two-way country fixed effects and IV–2SLS with lagged instruments address endogeneity. Nonlinearities captured via squared terms for trade and FDI; cluster-robust SEs; turning points estimated. Main findings: Trade openness and FDI follow inverted-U relationships with CO₂: below the thresholds they raise emissions, beyond them marginal effects decline and turn negative. Estimated turning points: trade ≈115% of GDP; FDI (sqrt) ≈1.82. Renewable energy share reduces emissions; industrialization increases emissions. Results are consistent across FE and IV–2SLS. Practical/managerial implications: Calibrate integration policies to operate beyond identified thresholds (quality trade/FDI and technology transfer), accelerate renewable deployment, and manage industrial structure to enable growth with decarbonization, informing ASEAN-5 pathways aligned with Paris and net-zero goals.