Abstract
The current study explores the effect of Foreign Direct Investment (FDI) on CO2 emissions in Azerbaijan utilizing time series data spanning from 1996 to 2013. The structural time series modeling (STSM) approach is employed in empirical estimations.
The STSM framework allows parameters to evolve over time. Estimation results show that the coefficients of FDI and income are time-varying.
The impact of FDI is positive before 2006 and negative after that year, while the income elasticity is positive for the entire period. The estimated income elasticity allows to conclude that the EKC phenomenon does not hold for the case of Azerbaijan.
The different effects of FDI on CO2 emissions, possible explanations and related policy implications are discussed.