Analyzing the association between the foreign direct investment and carbon emissions in MENA countries: a pathway to sustainable development

Currently, sustainable development has become one of the inevitable requirements for the country's economic evolution, as it encourages healthy and sustainable ecology for their people. To achieve this development, there is a need to decarbonize the energy system and minimize carbon emissions (CEM) because it brings a hazardous impact if left unabated. The motivation for this study is to analyze those factors that affect the CEM and threaten a sustainable environment. Precisely, this research explores the nonlinear association between CEM and FDI in the Middle East and North Africa (MENA) countries using the yearly data of 1995–2016. The Panel Smooth Transition Regression Model (PSTR) is applied, and the result confirmed that the nexus between the two variables is nonlinear. Moreover, it also shows that at a low regime, FDI increases the CEM, but as the economy progress to the high regime, the relationship between the two variables becomes negative and significant. The study also confirms that FDI can reduce CEM once it reaches a certain threshold point. Based on these findings, new insights are provided for the policymakers, and several policies are suggested to improve the environmental quality in MENA countries. It is also suggested that CEM and FDI should be considered while designing sustainable environmental policies.