Testing Pollution Haven and Pollution Halo Hypotheses for the Energy Sector: Evidence from Turkey

The mobility in foreign direct investment has increased with the liberalization of trade and globalization. Depending on this mobility, changes have occurred in the environmental quality of the countries according to the pollution level of the economic sectors. For this reason, the study's main aim is to examine the energy sector in Turkey in terms of pollution haven and pollution halo hypotheses. In the study, the variables of total greenhouse gas emissions from the energy sector (CO2 equivalent), urban population growth, and foreign direct investment inflows (%GDP) for the period 1990-2019 were used. The Johansen-Juselius (1990) test was used to determine the cointegration relationship between variables. The VECM (vector error correction model) and Toda-Yamamoto (1995) tests were used for causality analysis. According to the results of the analysis, there is a long-term relationship between the variables. In addition, it has been concluded that the pollution haven hypothesis is valid for the energy sector in Turkey in the long term. Therefore, the use of fossil energy resources by foreign direct investments in the energy sector should be deterred by various policies. As a result, administrative and financial regulations must be strong to ensure permanent environmental quality increases.