Unveiling the Connection Between Outward Foreign Direct Investment and Environmental Quality in Turkey: A Frequency Domain Causality Analysis

Debates relating to the sustainability of the environment have emerged as a major goal of the global agenda in recent years. As a result, this research examines the impact of outward foreign direct investment (OFDI) on carbon dioxide emissions (CO2) in Turkey from 1985 to 2022, using the autoregressive distributed lag model (ARDL) and frequency domain causality analysis (FDCA). In addition, economic growth (GDP) and trade in services (TROP) were used as control variables because they capture two big ways the economy interacts with environment. The empirical results are as follows: (i) The bounds test confirms a long-run association among the variables. (ii) The ARDL result confirms that in the long and short run, OFDI and GDP increase CO2 in Turkey, while TROP contributes to the quality of the environment. (iii) The FDCA demonstrates that OFDI Granger causes CO2 in the short and medium term, while TROP Granger causes CO2 in the short, medium, and long-term. Based on these results, policies are recommended for implementation.