Innovation and Green Development 3 (2024) 100171

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Innovation and Green Development

journal homepage: www.journals.elsevier.com/innovation-and-green-development

Full Length Article

Insights on China's economic and environmental dynamics for integrating

growth and sustainability
Muneeb Sagheer a, *, Alia Ashraf b
a
College of Economics and Management, Shanghai Ocean University, 201306 Shanghai, China
b
College of Engineering Science and Technology, Shanghai Ocean University, 201306 Shanghai, China

A R T I C L E I N F O A B S T R A C T

Keywords: Sustainable economic growth is vital for China to improve living standards, reduce poverty, enhance infra-
Foreign direct investment structure, foster green innovation, reduce consumption of natural resources, maintain social stability, and increase
Economic growth global competitiveness. This paper uses the ARDL model to study the relationships over the short- and long-term
CO2 emissions
between China's population dynamics, inflation, foreign direct investment, economic development, and rising
Inflation
Population
carbon dioxide emissions from 1990 to 2023. The findings indicate that population expansion has a short-term
negative influence on economic development, while CO2 emissions, foreign direct investment, and inflation all
have beneficial effects. Population growth, CO2 emissions, and inflation all contribute positively to economic
development, while FDI has long-term detrimental effects. By prioritizing policies that promote environmentally
friendly practices, encourage domestic innovation, and foster inclusive economic growth, China can achieve long-
term prosperity while mitigating adverse impacts on the environment and society.

1. Introduction investment behind the United States, owing to the current condition of
economic globalization (Hao, 2023).
Foreign direct investment (FDI) contributes to economic performance FDI lessens the inflationary strain on economic growth by fostering
improvement through fostering financial development, which in turn consistent capital inflows. This enhances the welfare of a nation's pop-
amplifies its impact on economic growth (Sirag et al., 2018). FDI has ulation by promoting sustainable development, creating more employ-
been rising consistently since the start of the decade, and it has signifi- ment opportunities, and permitting technology transfer, all of which lead
cantly boosted global economic development (Rehman, 2016; Aust et al., to long-term economic growth and greater living standards (Andinuur,
2020; Hayat, 2018). The effectiveness of FDI in promoting economic 2013; Zhang et al., 2023; Leit~ao et al., 2023). Foreign-funded businesses
growth often depends on the maturity of financial markets. In many that establish themselves in developing areas provide financial resources
economies, FDI's short-term impacts on economic development are to the host nation and foster economic progress (Botha et al., 2020).
modest, while its long-term benefits are normally significant (Azman-- China's “economic revolution” has been made possible in large part by
Saini et al., 2010; Belloumi, 2014). China's economy has developed at foreign direct investment, which has allowed the economy to transition
one of the fastest rates in the world because of increased FDI inflows and from underway to focused on the market. Massive FDI may lead to a
openness to trade after the opening up and reforms; this is because of its number of issues, including resource depletion and contamination of the
steady and robust economic growth (Peters et al., 2007; Hou et al., 2021). environment. There has been environmental deterioration as a conse-
China saw average annual growth rates of 15%, 10.4%, and 50% for its quence of FDI entering developing nations and areas with highly
industrial economy, FDI inflows, and GDP, respectively, from 1991 to concentrated energy demand sectors. A few countries have taken action
2020. Out of all of them, China received US$243.7 billion in FDI in 2010, by enacting stringent laws protecting the environment. The European
a 480% increase from US$42 billion in 2000. In 2020, the total value of Union is required under the 2030 Climatic and Energies Policies agree-
the inflow of foreign direct investment was US$253.1 billion, an increase ment to reduce its greenhouse gas (GHG) emissions by 40% by the year
of 3.9% and 7.5%, respectively, over 2010 and 2018. China is now the 2030. The United States of America has pledged not just to attain zero
developing country that gets the second-highest quantity of foreign direct emissions before 2050 but also to decrease the emission of greenhouse

* Corresponding author.
E-mail address: [email protected] (M. Sagheer).

https://doi.org/10.1016/j.igd.2024.100171
Received 17 March 2024; Received in revised form 4 July 2024; Accepted 9 July 2024
Available online 26 July 2024
2949-7531/© 2024 The Author(s). Published by Elsevier B.V. on behalf of Business School, Zhengzhou University. This is an open access article under the CC BY
license (http://creativecommons.org/licenses/by/4.0/).
M. Sagheer, A. Ashraf Innovation and Green Development 3 (2024) 100171

gases by half by 2030 (Su et al., 2021). Environmental standards are environmental deterioration and economic progress highlights the
more likely to be inadequate in developing countries with limited levels intricate interactions between ecological sustainability and financial
of infrastructure. As the countries of China, India, and Vietnam are success, emphasizing the urgent requirement for comprehensive policies
expanding economically, environmental protection regulations have not to balance these conflicting interests. The primary research question is:
been properly implemented. The EU, Japan, and the US provide the How does foreign direct investment (FDI) contribute to the growth of the
majority of the FDI to these nations, which may have negative effects. Chinese economy? Additionally, the study looks at how economic
Due to a number of serious incidents, such as the COVID-19 epidemic and expansion affects a sustainable environment, especially in light of
the challenging strategic environment, global foreign direct investment greenhouse gas emissions? The main objective of the study is to estimate
fluctuated greatly. The COVID-19 epidemic has had an unparalleled the FDI impact on the economic growth of a country. The secondary
impact on social and economic instability, economic development, objective is to observe the impact of economic growth on the environ-
environmental quality, and the amount of foreign direct investment ment. The research contribution and innovations are as follows: Firstly,
(Azomahou et al., 2021; Syarifuddin & Setiawan, 2022). the study's conclusions will highlight how macroeconomic factors like
Asian nations gave industrialization their first priority at the begin- foreign direct investment, inflation, and population growth affect China's
ning of the twenty-first century, rather than tackling environmental is- economic expansion. Secondly, particularly in terms of carbon dioxide
sues. Since increasing production scales have an impact on ecosystems, emissions, the investigation will demonstrate that China's economic
environmental degradation has been an unavoidable result of economic growth is environmentally sustainable. Thirdly, macroeconomic, envi-
advancement (Ullah et al., 2022). Since industrial pollution is a signifi- ronmental, and economic factors are estimated in both the short and
cant cause of environmental damage, it must be prioritized. The pollut- long-term using the ARDL model. Finally, the study's conclusions may
ants that industrial companies release into the atmosphere do significant help policymakers formulate sustainable development plans that strike a
damage to the ecosystem. China has some of the worst levels of urban balance between environmental protection and economic expansion, as
pollution in the world. According to estimates, 3%–8% of China's annual well as encourage foreign investment in China's economy. Furthermore,
GDP comes from firms and activities that cause pollution. Depending on the study adds to the larger academic discussion on the causes of eco-
the degree of urbanization, there is always some degree of impact that nomic development and ecological sustainability in developing nations,
urbanization has on the environment (Zhang et al., 2023). China's fast broadening our knowledge of global economic dynamics.
economic expansion and urbanization have resulted in increased degra- The remainder of the article is structured as follows: Section 2 reviews
dation of the environment and social and economic inequality. Notably, the literature; Sections 3 and 4 provide the methodology, findings, and
World Bank statistics show a high link between China's GDP per capita study discussion, respectively. Based on the study's conclusions and
(in constant 2015 US dollars) and CO2 emissions per capita compared to suggestions, Section 5 is written.
the global average from 1990 to 2019. In addition, the Chinese Gini
coefficient, a measure of disparities in income, reached roughly 0.44 in 2. Literature review
2010 from 0.30 in 1978 before falling to around 0.38 in 2019 (Ravallion
and Chen, 2009; Deng et al., 2023). Improving the environment has been A lot of attention has been paid by empirical research to the literature
a top priority for the Chinese government. Unfortunately, these objec- that looks at the link between the GDP and its components, such as the
tives may impede the growth of the economy and give rise to social rate of inflation, FDI, carbon dioxide (CO2) emissions, and population
challenges (Paul & Singh, 2017). dynamics. Research on the relationship between foreign direct invest-
In order to mitigate climate change, maintain renewable energy ment (FDI) and economic growth has been extensive. According to Khan
sources, and reduce pollution, governments around the globe now and Imran (2023), there is a positive correlation between economic
consider the transition to a low-carbon economy to be essential (de growth and foreign direct investment (FDI), indicating that the link is
Miguel et al., 2019). Blocking high-emission companies while growing beneficial. Specifically, inflows of foreign direct investment (FDI) pro-
low-emission ones may effectively reduce CO2 emissions without taking vide cutting-edge technology, promote economic growth, increase the
other strategic aims into account. While reducing CO2 emissions from capital stock, and make it easier for the receiving country to get flexible
fossil fuel consumption is urgently needed, prosperity and economic funding for economic development. Growing economies tend to attract
development should be maintained (Paramati, Mo, & Huang, 2021). As a more foreign direct investment (FDI) because they provide incentives for
result, a well-thought-out industrial strategy may have an influence on a investment (Saini and Singhania, 2018, 2019; Asafo-Agyei and Kodongo,
nation's development by producing improved and more domestic jobs, 2022). Saleem et al. (2024) contend that foreign loans and direct in-
reducing emissions of CO2 and other greenhouse gases, and raising vestments harm Brazil's sustainable development. Fazaalloh (2024) in-
productivity as well as competitiveness at the level of the national vestigates how foreign direct investment affects regional economic
economy. This kind of approach would need to prioritize (Bai et al., development in Indonesia and finds major advantages in a number of
2021). A major objective that China has set for itself is to attain net-zero sectors. Meilisa et al. (2024) look at the long-term consequences of
CO2 emissions by 2060. This courageous promise demonstrates the na- foreign debt and foreign direct investment on the state of the Indonesian
tion's commitment to tackling climate change and preserving the envi- economy, emphasizing the necessity for balanced policy development
ronment. China is working towards a more sustainable and and the variety of temporal repercussions. The necessity for balanced
environmentally friendly future by aiming to attain net-zero emissions, policy development and the variety of temporal repercussions. Pham
or removing as much CO2 from the atmosphere as is produced. Such et al. (2024) examine how inclusive progress among Asia's top
planned action aligns with global efforts to address climate change and GDP-producing countries is impacted by fiscal growth and natural
shift to a carbon-free economy (Ramzan et al., 2024; Amin et al., 2024). resource rents, highlighting the need for effective resource allocation.
There are a number of convincing reasons for choosing China as the Some researchers have supported the FDI hypothesis that certain re-
research's main issue. China is a major worldwide effect, with the second- gions are havens for pollution. According to this argument, the relocation
largest economy in the world and the second-highest population in the of polluting projects to low-income nations in an effort to lower
world. Its important position in the world economy is shown by the fact manufacturing costs is the result of foreign direct investment (FDI).
that it is one of the top recipients of foreign direct investment (FDI). Additionally, nations that experience economic growth tend to use more
Furthermore, environmental deterioration has been exacerbated by energy and release more pollutants into the atmosphere, which causes
China's economic expansion; thus, addressing these problems is essential the quality of the environment to gradually decline (Caglar, 2020; Sin-
to sustainable development. An influx of FDI into China drove strong ghania & Saini, 2021). According to Tukhtamurodov et al. (2024), trade
economic growth and, as a result, increased environmental degradation, openness, energy consumption, and foreign direct investment all have an
marked by increased CO2 emissions. This symbiotic link between impact on how much carbon dioxide is generated in the BRICS nations.

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This underscores the necessity for extensive policy measures to address Various research works have investigated the interrelationships
environmental problems. However, foreign direct investment (FDI) im- among inflation, foreign direct investment, and economic development,
proves resource utilization efficiency and environmental quality by shedding light on the intricate framework of these associations in a
bringing cutting-edge technology and managerial expertise to less number of countries. Andinuur (2013) carried out research in Ghana
developed areas (Xie et al., 2023; Yilanci et al., 2023; Teng et al., 2023). from 1980 to 2011, with the goal of examining the relationships between
Leit~
ao et al. (2023) found that GDP development in the Visegrad nations these factors. The results point to important connections between FDI,
positively correlated with pollution emissions and that foreign direct inflation, and economic expansion. It has been shown, notably, that
investment validated the pollution halo idea. Androniceanu and Geor- inflation seriously impedes both economic growth and foreign direct
gescu (2023) concentrate on EU Member States, establishing the investment. However, there is a clear positive association between eco-
short-term duration causalities between emissions of carbon dioxide and nomic growth and foreign direct investment. Similarly, employing time
energy consumption, alongside FDI on growth in gross domestic product, series data from 1990 to 2011, Saleem et al. (2024) examined the in-
and making suggestions to boost renewable energy for environmentally fluence of economic progress and inflation on foreign direct investment
friendly development. Iqbal et al. (2023) examine the effects of the BRICS in Pakistan. The positive relationship between the rate of inflation,
countries' economic growth on exports of products, foreign direct in- growth in the economy, and foreign direct investment is shown by using
vestment, the use of energy from renewable sources, and greenhouse gas of multiple regression approaches. This suggests that in the Pakistani
emissions. They confirm that these variables have positive long-term context, both inflation and economic growth act as stimulants to attract
effects on the economy and suggest measures to support FDI and the foreign investment. However, Alshamsi et al. (2015) used the
usage of energy from renewable sources. auto-regressive distributed lag (ARDL) model to examine the effects of
Although foreign direct investment (FDI) has the potential to increase GDP per capita and inflation rate on FDI inflows to the United Arab
economic development, it may also have unfavorable repercussions, such Emirates over a 33-year period from 1980 to 2013. They found that while
as environmental pollution and harm (Bildirici & Çoban Kayıkçı, 2023). inflation had no significant effect on FDI inflows, GDP per capita had a
The environmental Kuznets curve (EKC), which depicts an inverse positive impact on FDI inflows. This implies that when it comes to
U-curve relationship between economic output and environmental drawing in foreign investment, market size matters more in the United
pollution, has been the primary focus of previous research on the rela- Arab Emirates than inflation. Emara and Zecheru (2024), Vu et al.
tionship between economic development and pollution. There may be an (2024), and Hidayat (2024) analyze the influence of macroeconomic
EKC curve since research indicates that environmental pollution rises in factors, such as GDP and inflation, on various aspects of the economy.
the early stages of economic growth and then falls as the economy grows Their research provides insights into the interconnectedness of these
to a certain point (Altinoz et al., 2020; Alvarado et al., 2021; Wu & Wang, variables and their implications for economic performance and policy
2023). Scholars such as Raihan (2024) have observed a concurrent in- formulation.
crease in GDP and CO2 emissions over time, reflecting the complicated The positive relationship that Leit~ao et al. (2023) found between
connection between economic expansion and environmental degrada- population growth, FDI, and economic growth emphasizes how impor-
tion. This perspective aligns with Ghazouani and Maktouf's (2024) tant these factors are in promoting overall economic development.
assertion of a long-term negative impact of economic activities, including Additionally, research by Zhang et al. (2023) shows that foreign direct
natural resource exploitation and trade openness, on environmental investment (FDI) increases population access to healthcare facilities and
quality, as evidenced by rising CO2 emissions. Conversely, studies such as enhances income levels over time, in addition to encouraging job
Khan and Sun (2024) highlight asymmetries in the relationship, indi- development in China. These observations underscore the diverse im-
cating that while positive energy shocks may initially boost GDP, they also pacts of foreign direct investment (FDI) beyond economic expansion,
correspond to increased CO2 emissions, underscoring the intricate dy- stressing its function in societal advancement and enhancing wellbeing.
namics between economic expansion and environmental concerns. Bucci et al. (2021) provide information on the relationship between GDP,
Furthermore, Khan et al. (2024) emphasizes the importance of environ- population increase, and production complexity in OECD nations. Their
mentally friendly energy consumption in mitigating CO2 emissions, sug- research offers insightful insights on the many drivers of economic
gesting that policies promoting sustainable energy sources can align growth and the challenges associated with controlling population dy-
economic growth with environmental sustainability. In order to support namics within the framework of economic development by showing the
sustainable development, Nguyen (2024) highlights the intricate effects intricate interplay between these elements. Last but not least, Chen et al.
that economic globalization has on GDP and greenhouse gas emissions in (2022) looks at the relationships between BRICS countries' GDP, energy
Southeast Asian countries. She also highlights the need for region-specific consumption, urbanization, and population increase. The policy impli-
policy interventions. Olaoye (2024) examines the relationship that exists cations for preserving ecological sustainability in the face of sudden shifts
between economic success, environmental quality, and energy use in in the population and economy are highlighted by their findings. They
many African nations. It concludes that emissions of carbon dioxide also demonstrate the inverse causal relationships between these
stimulate economies in Africa. Jebabli et al. (2023) show the asymmet- variables.
rical and dynamic relationships between GDP growth and carbon dioxide Contradictory findings have been found in earlier studies on the
emissions, demonstrating a two-way interaction between these variables impact of foreign direct investment (FDI), population, inflation, and CO2
by expanding their analysis to the G7 nations. In their investigation of emissions on the level of economic growth. This emphasizes the necessity
China's efforts to cut carbon emissions, Xie et al. (2023) highlights the for a modified study that is relevant to China. A focused investigation is
need to decrease the use of coal and petroleum while increasing the use of required to address the significant research gap in understanding how
renewable energy sources in order to achieve environmentally friendly macroeconomic factors like FDI, inflation, and population dynamics
economic development. In an effort to improve environmental quality, contribute to China's economic growth and environmental sustainability.
Saba (2023) looks at GDP relationships, the usage of power from renew- Divergent results have been produced by differences in variables,
able sources, and the release of carbon dioxide (CO2) across the continent methodologies, and time periods. In order to close this gap, this research
of South Africa. It emphasizes the significance of cooperation between looks at the short- and long-term effects of key macroeconomic factors on
development, sustainability, and energy from renewable sources initia- China's economic development from 1990 to 2023. Furthermore, it an-
tives. Additionally, Khan et al. (2021) explores how the energy trilemma alyses the link between the economy and environmental factors like CO2
affects GDP in the highest-ranking nations, promoting measures that emissions in an effort to assess the environmental sustainability of this
improve financial development and energy efficiency. Their study em- development path. This research will examine the complex relationships
phasizes how critical it is to handle energy-related issues in order to between economic production, CO2 emissions, FDI, inflation, and pop-
maintain economic development and lessen environmental damage. ulation dynamics using an autoregressive distributed lag (ARDL)

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M. Sagheer, A. Ashraf Innovation and Green Development 3 (2024) 100171

technique. The research attempts to provide a better understanding of and Perron (1988), were used to assess the stationary patterns of each of
how these elements interact and affect China's economic and environ- the variables under investigation. If the variables of the second difference
mental landscape over time by using this strong analytical approach. The are determined to be stationary, the ARDL model is no longer appro-
results of this study will not only help policymakers create policies that priate. Instead, it occurs when variables exhibit stationarity at their level,
encourage sustainable economic growth, but they will also add to the or first, a difference. This essential difference guarantees that the analysis
body of knowledge by illuminating the intricate relationships that exist is resilient and valid. The major goal of these unit root analyses is to
between environmental preservation and economic development. Ulti- guarantee that none of the variables displays stationarity at the second
mately, China may make a valuable contribution to international sus- difference, thereby avoiding incorrect conclusions in later studies. The
tainability efforts and act as a role model for other countries experiencing null hypothesis proposes that the data being collected is not stationary,
comparable difficulties by promoting long-term prosperity while mini- whereas the alternative hypothesis assumes stationary behavior. These
mizing environmental impact. tests are critical stages in determining the applicability of the ARDL
model for the empirical research at hand. The hypothesis of the unit root
3. Material and methods analysis is crucial in measuring the degree of stationarity of the variables
under investigation.
3.1. Data and basic models Ho: α ¼ 0.
H1: α 6¼ 0.
In the present investigation, we use data gathered by the World Bank's
databases from 1990 to 2023 to evaluate the link between multiple eco-
nomic performance factors and ecological factors. The variable Gross Do- 3.3. ARDL model
mestic Product (GDP), represented in logarithmic form as LNGDP and
measured in current US dollars, is sourced from the World Development The autoregressive distributed lag, or ARDL model, a popular
Indicators (WDI). Similarly, CO2 emissions, denoted as LNCO2 and econometric method, combines short-run and long-run shifts into a single
measured in kilotons (kt), are extracted from the WDI. Foreign direct in- framework. It allows for both stationary as well as non-stationary vari-
vestment (FDI) is expressed by LNFDI, which reflects the net investment as ables, providing flexibility in modelling interactions between variables
a proportion of gross domestic product, sourced from the WDI. Addition- with different features. Pesaran et al. (2001) employed the ARDL
ally, inflation, denoted as LNINF and expressed as annual percentage method, which stands for autoregressive distributed, for evaluating the
changes in consumer prices, is sourced from the WDI. Lastly, population, correlations among indicators. This approach is especially useful for
represented by LNPOP, is measured as the total number of individuals. The exploring long-term connections between variables, as shown by Pesaran
basic description of variables is given in Table 1. These variables collec- et al. (1999) as well as Pesaran et al. (2001). Duasa (2007) claims that the
tively capture key economic and environmental dimensions, enabling a ARDL model exceeds other co-integration models in terms of accessibility
comprehensive examination of their interrelationships over the specified and dependability, in contrast to the models developed by Granger
time frame. The basic economic equation of variables is: (1981), Engle and Granger (1987), and Johansen and Juselius (1990),
which require identical lags for application. Unlike traditional methods
GDP ¼ f ðCO2 þ FDI þ INF þ POPÞ (1) that focus solely on short-run dynamics or require all variables to be
stationary, the ARDL method works when certain variables are stationary
The variables in equation no. (1) demonstrated as GDP represents the
but others are not. This makes it particularly advantageous for analyzing
gross domestic production, CO2 represents the carbon dioxide emission,
economic phenomena characterized by mixed orders of integration
FDI represents foreign direct investment, INF represents the inflation,
(Narayan, 2004). By employing ARDL, researchers can effectively cap-
POP represents the population of China. Equation (1) may be represented
ture the complex interplay between variables exhibiting different
in a logarithmic format to reflect its long-term impacts, as shown below:
time-series properties, facilitating comprehensive analysis and robust
LNGDPet ¼ β0 þ β1 LNCO2t þ β2 LNFDIt þ β3 LNINFt þ β4 LNPOPt þ εt (2) inference in empirical studies.
Our study looked at GDP and other characteristics to see how they
The variables in equation no. (2) demonstrated as LNGDPet represents correlated in both the shorter and longer term. The ARDL model with
the log of gross domestic production, LNCO2t represents log of carbon error correction is necessary for co-integration estimation; in addition,
dioxide emissions, LNFDIt displays the log of foreign direct investment, the autoregressive lag distribution model serves as the basis, offering a
LNINFt displays the log of inflation, and LNPOPt displays the log of comprehensive framework for our analytical approach.
population of China. β1  β6 represents the longer-term coefficients of the
basic model and εt error term. X
r X
r X
r
ΔGDPet ¼β0 þ βr ΔLnGDPetr þ βr ΔLnCO2tr þ βr ΔLnFDItr
r¼1 r¼0 r¼0
X
r X
r
3.2. Unit root test þ βr ΔLnINFtr þ βr ΔLnPOPtr þ β1 LnGDPt1
r¼0 r¼0
The Augmented Dickey-Fuller (ADF) test, created by Dickey and þ β2 LnCO2t1 þ β3 LnFDIt1 þ β4 LnINFt1 þ β5 LnPOPt1 εt
Fuller (1979), and the Phillips-Perron (P–P) test, developed by Phillips (3)
Equation (3) describes the basic parameters of the ARDL (Autore-
Table 1
gressive Distributed Lag) model, a flexible econometric framework often
Description of variables.
used in empirical study.
Variables Log Units Data
Form Sources X
r X
r X
r
ΔGDPet ¼β0 þ βr ΔLnGDPetr þ βr ΔLnCO2tr þ βr ΔLnFDItr
Gross Domestic LNGDP Current USD WDI
r¼1 r¼0 r¼0
Production
X
r X
r
CO2 Emissions LNCO2 (kt) WDI
þ βr ΔLnINFtr þ βr ΔLnPOPtr þ εt
Foreign direct LNFDI Gross inflows (a percentage of WDI r¼0 r¼0
investment GDP)
Inflation LNINF Consumer prices (annual WDI
(4)
percentage) In the analysis of the long-term association among variables, equation
Population LNPOP Total number WDI
(4) serves as a pivotal tool.

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M. Sagheer, A. Ashraf Innovation and Green Development 3 (2024) 100171

X
r X
r X
r exhibit stationary behavior, thereby fulfilling a key assumption of the
ΔGDPet ¼β0 þ βr ΔLnGDPetr þ βr ΔLnCO2tr þ βr ΔLnFDItr ARDL framework.
r¼1 r¼0 r¼0
X
r X
r
þ βr ΔLnINFtr þ βr ΔLnPOPtr þ ECMt1 þ εt 4.3. Bound test and Johansen co-integration test
r¼0 r¼0

(5) The bound outcomes from tests are shown in Table 4. These bound
Equation (5) is used to determine the short-term connections between findings from the ARDL model of analysis give useful information about
the variables that are being investigated. the longer-term connection between the factors under consideration. The
F-statistic value of 5.8913 shows that the null hypotheses for zero coin-
4. Results and discussion tegration of variables have been rejected over the 10% significance
levels, showing that all the variables have longer-term linkages among
4.1. Descriptive statistics and the correlation of variables them. Additionally, the critical values of k at various significance levels
further confirm this finding, with all values exceeding the corresponding
The statistical characteristics and correlation findings are shown in thresholds. Specifically, the critical values of k at 5%, 2.5%, and 1%
Table 2. The statistical descriptions and correlational assessments per- significance levels are consistently higher than the calculated F-statistic,
formed in this study give important insights into the connections be- indicating robust evidence of cointegration. Furthermore, the values of
tween the variables being studied. First, the distribution of the median, I(0) and I(1) describe the order of integration for the model's variables,
mean, minimum, maximum, and deviance to standard, kurtosis, skew- with I(0) denoting variables integrating to order 0 and I(1) denoting
ness, Jarque-Bera evaluation statistics, and the probabilities associated variables integrating to order 1. The findings demonstrate that each of
with them offer a comprehensive overview of the central tendency, the factors has I(1) integration, implying that they're non-stationary for
dispersion, and distributional characteristics of the variables, including level and stationary for first difference.
LNGDP, LNCO2, LNFDI, LNINF, and LNPOP. Notably, LNGDP exhibits the The Johansen cointegration test results are presented in Table 5. The
highest mean and median values among the variables, indicating its Johansen cointegration test results indicate a significant cointegration of
central position within the dataset. The correlation matrix reveals sig- assassinations between all the factors under investigation. An eigenvalue
nificant relationships between LNGDP and LNCO2, LNFDI, and LNPOP, of 0.8105 with a matching test statistic of 113.0903 indicates that the
with coefficients of 0.9885, 0.6208, and 0.9801, respectively, sug- trace test rejects the null hypothesis for no cointegration (zero cointe-
gesting strong positive associations with LNCO2 and LNPOP and a grating equations) at the 5% level. Similarly, the hypothesis of at most
negative correlation with LNFDI. Additionally, LNCO2 displays a strong one cointegrating equation is rejected with an eigenvalue of 0.6054 and a
positive correlation with LNPOP (0.9705). Conversely, LNFDI exhibits a corresponding test statistic of 59.8490. These findings suggest the pres-
relatively weak correlation with the other variables, with a coefficient of ence of long-run equilibrium relationships among the variables.
0.2703, with LNINF being the highest. Furthermore, the maximum eigenvalue test supports these findings,
including the null assumption that cointegration is not invalidated at the
5 percent significant levels. The eigenvalue of 0.8105 and the associated
4.2. Variables stationarity test test statistic of 53.2412 confirm the existence of cointegration. However,
it is worth noting that, although the null assumption underlying at least
The findings of the unit root test are displayed in Table 3. The unit two integrating variables is ruled out during the trace assessment, this is
root test provides insights into the sequence of integrating all of the not disregarded in the maximum eigenvalue test, indicating the possi-
variables, which is pivotal for ARDL modeling. The results indicate that bility of further examination to ascertain the precise number of cointe-
for the PP (Phillips-Perron) and ADP (Augmented Dickey-Fuller with grating relationships. Overall, these findings validate the use of the ARDL
Phillips-Perron) assessments, the majority of the parameters exhibit technique in examining the long-term dynamics of the factors under
stationarity in the first difference form, as demonstrated by the statisti- study by providing empirical evidence for the occurrence of cointegra-
cally significant value of the first difference coefficients at conventional tion among the model's variables.
levels of significance. For the PP test, the intercept term is statistically
significant in the initial differences across all of the variables except 4.4. Analysis of both the short and long term
LnCO2 under the ADP-PP test. Moreover, the trend and intercept terms
are significant in the first difference for all variables under both PP and The findings of the short- and long-term analytical tests are shown in
ADP tests. These findings suggest that after differencing, the variables Table 6. At the 5% significance level, China's CO2 emissions and a short-
term economic expansion have a statistically significant association.
Table 2 More specifically, China's GDP grows by an astounding 53% in the near
Descriptive statistics and correlation of variables. run for every 1% rise in CO2 emissions. At the 1% significance level, the
LNGDP LNCO2 LNFDI LNINF LNPOP long-term relationship between GDP growth and CO2 emissions is also
positive and statistically significant. Every 1% rise in CO2 emissions
Mean 28.7752 15.5540 1.0816 1.5428 20.9869
Median 28.7707 15.7190 1.2486 1.3051 20.9966 significantly boosts long-term economic development by 169%. The
Maximum 30.5193 16.2083 2.3872 4.5978 21.0685 findings are identical to those of earlier research conducted by Chen et al.
Minimum 26.7010 14.5917 0.0029 0.1200 20.8500 (2022), Raihan (2024), Ghazouani and Maktouf (2024), Khan et al.
Std. Dev. 1.2822 0.5780 0.5373 0.9614 0.0658
(2024), Olaoye (2024), Jebabli et al. (2023), and Iqbal et al. (2023).
Skewness 0.0956 0.2605 0.2067 0.9675 0.4737
Kurtosis 1.5492 1.4423 2.7677 4.1313 2.1276
Numerous reasons may be responsible for the long- and short-term pos-
Jarque-Bera 3.0333 3.8219 0.3185 7.1179 2.3502 itive correlation between CO2 emissions and economic growth. The in-
Probability 0.2194 0.1479 0.8527 0.0284 0.3087 crease in industrialization is responsible for roughly 60 percent of the
Sum 978.3575 528.8360 36.7744 52.4557 713.5563 emissions of greenhouse gases in the atmosphere. These emissions are
Sum Sq. Dev. 54.2571 11.0251 9.5270 30.5069 0.1429
mostly caused by carbon dioxide (CO2). Fossil fuel energy consumption
LNGDP LNCO2 LNFDI LNINF LNPOP speeds up environmental deterioration and climatic change. The main
LNGDP 1 0.9885 0.6208 0.3685 0.9801 contributors to CO2 emissions are natural gas, fossil fuels, and petroleum
LNCO2 0.9885 1 0.5633 0.3857 0.9705 products (Ferda, 2009; Njoh, 2021). China's rapid economic expansion
LNFDI 0.6208 0.5633 1 0.2703 0.5897 has been the main factor contributing to the country's high fossil fuel use.
LNINF 0.3685 0.3857 0.2703 1 0.3658
Approximately 84.33% of the nation's main energy use is derived from

5
M. Sagheer, A. Ashraf Innovation and Green Development 3 (2024) 100171

Table 3
Unit root tests.
Variable Level First Difference

Intercept Trend and intercept Without Trend and intercept Intercept Trend and intercept Without Trend and intercept

PP
LNGDP 1.164 0.906 6.228 5.224*** 5.369*** 2.214**
LNCO2 1.483 0.611 3.504 2.698* 3.015 1.808*
LNFDI 3.864*** 4.847*** 2.060** 11.345*** 12.188*** 11.631***
LNINF 3.868*** 4.457*** 1.379 12.127*** 11.262*** 12.421***
LNPOP 7.389*** 1.416 5.818 0.960 1.879 2.927***
ADP
LNGDP 1.920 2.086 0.761 1.116 1.541 1.175
LNCO2 1.474 0.897 1.665 2.615 2.923 1.902*
LNFDI 0.089 1.149 1.790* 3.081** 3.068 2.347**
LNINF 3.924*** 4.464*** 0.997 9.162*** 9.006*** 9.314***
LNPOP 3.562** 1.848 0.130 0.632 2.103 1.608

Notes: * shows 10%; ** shows 5%; *** shows 1% level of significance.

Table 4
coal, oil, and natural gas, all of which both directly and indirectly release
Bound testing. significant amounts of greenhouse gas emissions into the atmosphere.
China's total CO2 emissions climbed from 8.1 billion metric tonnes in
Test Stat. Value Sig. I(0) I(1)
2010 to around 9.9 billion metric tonnes in 2020. China was thus
F-statistic 5.8913 10% 2.45 3.52 responsible for 30.9% of global CO2 emissions. Most remarkably, China's
k 4 5% 2.86 4.01
entire primary energy consumption comes from the use of coal, which
2.5% 3.25 4.49
1% 3.74 5.06 makes up 56.56%. Growth, secure energy, and environmental degrada-
tion are all significantly impacted by this (Lin & Zhu, 2019).
At a 5% significance level, there is a statistically significant and
positive short-term correlation between economic development and
Table 5
Jonson co-integration results. foreign direct investment. In particular, there is a 13% boost in economic
growth for every 1% increase in FDI. However, long-term dynamics
Hypothesized No. of Eigenvalue t Stat. 0.05 Critical p-
reveal a contrary trend, with FDI having an unfavorable and statistically
CE(s) Value value**
insignificant association with economic expansion. A one percentage
Trace Test
point rise in FDI is expected to reduce the economy's expansion by 9%
None * 0.8105 113.0903 69.8188 0.0000
At most 1 * 0.6054 59.8490 47.8561 0.0025 over the longer-term run. These results are aligned with previous
At most 2 * 0.3991 30.0872 29.7970 0.0463 research conducted by Raihan (2024), Nguyen (2024), Fazaalloh (2024),
At most 3 0.3110 13.7860 15.4947 0.0890 Meilisa et al. (2024), Solomon and Mailamba (2024), and Iqbal et al.
At most 4 0.0565 1.8638 3.8414 0.1722 (2023). Being a positive sign, stronger economies often draw more
Maximum Eigenvalue
None * 0.8105 53.2412 33.8768 0.0001
foreign direct investment (FDI). The capital stock and the importing
At most 1 * 0.6054 29.7617 27.5843 0.0259 country's availability of flexible financing for financial growth are both
At most 2 0.3991 16.3012 21.1316 0.2078 increased by FDI inflows. It also promotes economic development and
At most 3 0.3110 11.9222 14.2646 0.1136 brings cutting-edge technologies. Foreign direct investment (FDI) has the
At most 4 0.0565 1.8638 3.8414 0.1722
potential to hasten economic growth and create jobs, but it may also have
Note: *Exhibit the invalidation of the hypothesis at the significance level (0.05); negative consequences, including pollution and environmental harm
**Exhibit the likelihood values for MacKinnon-Haug-Michelis. (Bildirici & Çoban Kayıkçı, 2023; Saini & Singhania, 2019). FDI helps
China's economic and technological advancement, especially via tech-
nology transfers with industrialized countries. By promoting innovation
Table 6 via input accessibility, migration, and technical advancements, FDI
Short and long-term results.
lessens the negative employment impacts of the industrial shift. China's
Variables Coefficients Std. Error t-Stat. p-value reliance on foreign direct investment (FDI) is decreasing as per capita
Panel A: Short-term Error Correction Regression GDP grows, indicating a decrease in FDI dependency along with eco-
C 108.8106 14.9551 7.2757 0.0008* nomic development (Dong et al., 2021; Fang et al., 2021; Liao et al.,
LNCO2 0.5344 0.1792 2.9810 0.0308** 2021).
LNFDI 0.1343 0.0412 3.2572 0.0225**
At the 5% significance level, there is a short-term favorable and sta-
LNINF 0.0149 0.0049 2.9941 0.0303**
LNPOP 8.1560 13.9352 0.5852 0.5838 tistically significant association between inflation (INF) and economic
CointEq(-1)* 1.4674 0.2015 7.2816 0.0008*** expansion in China. In particular, a 1% rise in inflation leads to a 13%
Panel B: Long-run estimations increase in short-term economic expansion. Conversely, in the long term,
LNCO2 1.6952 0.1399 12.1095 0.0001***
a similar favorable and statistically significant association among infla-
LNFDI 0.0904 0.0869 1.0400 0.3460
LNINF 0.0668 0.0257 2.5998 0.0483**
tion (INF) and economic expansion is observed at a 5% significant level.
LNPOP 3.6657 1.5277 2.3993 0.0617* However, the magnitude of this effect diminishes, with a 1% rise in
R2 value (0.9802) M-dependent var (0.1121) inflation leading to a 6% rise in the growth of the economy over the
Adj-R2 (0.9362) SD-dependent var (0.0826) longer term. These results are aligned with recent research conducted by
S.E of regression (0.0208) AIC values (4.7064)
Pham et al. (2024), Uddin and Rahman (2023), and Razia et al. (2023),
S-squared resid. (0.0039) SC values (3.7256)
Log-likelihood (91.5969) H-Quinn criteria (4.3926) which also reported positive relationships between inflation and growth
F-statistics (22.3115) D.W (2.7835) in the economy. However, they contradict the results of Mandeya et al.
Prob. (F-statistics) (0.0000) (2021), Tien (2021), Adaramola et al. (2020), and Vu et al. (2024), who
Note: *** ¼ 1%, ** ¼ 5%, * ¼ 10%, level of significance observed negative relationships among inflation and growth in the

6
M. Sagheer, A. Ashraf Innovation and Green Development 3 (2024) 100171

economy. According to academics, politicians, and financial institutions,

one of the biggest economic mysteries of the last several decades has
been the correlation between inflation and economic growth (Nawaz
et al., 2019). Because it impacts many facets of the population's eco-
nomic, political, and social lives, inflation is a significant phenomenon
that affects both developed and emerging nations. It also has an impact
on the economy throughout business cycle booms and even periods of
poor development. High inflation during booms redistributes real and
financial assets and may compel monetary authorities to impose eco-
nomic restraints, which might trigger recessions. Low inflation will help
maintain low interest rates during periods of poor development, which
might eventually cause the economy as a whole to heat up (Elsayed et al.,
2021).
In the short run, the association between population (POP) and the
growth of the economy exhibits a negative correlation, although statis-
tically insignificant. In particular, an increase of one percentage point in
population is related to an 815% decline in short-term growth in the
economy. However, in the long run, the relationship between population
and economic growth becomes positive and statistically significant at a
10% significance level. A 1% increase in population is associated with a
substantial 366% increase in economic growth over the longer term. The
findings are similar to prior research conducted by Bucci et al. (2021),
Chen et al. (2022), Khan et al. (2021), and Khan et al. (2024); they also
reported a favorable relationship between population and growth in the
economy. Conversely, Pham et al. (2024) found an adverse linkage be-
tween population and the growth of a country's economy. Population
growth is a universal strategy used by developing nations to foster eco-
nomic growth and is a crucial indicator of that progress. Population
growth accelerates economic development by encouraging the accumu-
lation of resources and the transfer of knowledge, increasing investment
and consumption, creating a clustering effect, and giving economies of
scale (Ji et al., 2020).
The Error Correction Terms (ECT) measurements are negative in
value and statistically significant at the 1% level of significance. Ac- Fig. 1. CUSUM and its Squares Plot.
cording to ECT, the speed of adjustment to this previously established
equilibrium is around 146% in a single year. The total model has a high
R-squared value of 0.9802, suggesting that each of the independent 5. Conclusion and recommendations
variables in combination contributes to a considerable percentage of the
variance in the dependent variable's value. Furthermore, an F-statistic of This research explores the intricate link between China's economic
22.3115 with the accompanying probability ratio of 0.0000 shows that growth and several factors using time-series data spanning from 1990 to
each component of the model is statistically significant. Overall, these 2023. The LNPOP, LNGDP, LNINF, LNFDI, and LNCO2 emissions of China
findings give useful insights into the model's both short- and long-run were all examined in this research. A symmetric autoregressive distrib-
dynamics, providing for a deeper comprehension of the associations uted lag (ARDL) model was used to analyze both short- and long-term
amongst the variables that are under consideration. trends, which helped to understand how these factors affected eco-
nomic growth. The results show that there is a short-term negative, sta-
tistically insignificant association between LNPOP increase and LNGDP,
4.5. Stability and diagnostic test
but a long-term positive, significant relationship. Furthermore, it is
shown that LNCO2 emissions greatly stimulate the economy in both di-
Table 7 presents the stability and diagnostic test results for the model.
rections, highlighting the critical role that environmentally friendly
The Breusch-Pagan-Godfrey tests for heteroskedasticity and serial cor-
development plays in promoting economic advancement. LNFDI has a
relation yielded f-statistics of 0.4401 and 3.6729, respectively, with
detrimental long-term impact on the Chinese economy, yet there is a
associated p-values of 0.9363 and 0.3706, indicating no significant evi-
favorable and statistically significant correlation between LNFDI and
dence of heteroskedasticity or serial correlation. Additionally, the
short-term LNGDP. Although there is a strong and positive long-term
CUSUM and CUSUM of squares tests in Fig. 1 indicate stability, sug-
correlation between LNINF and LNGDP, there is no discernible short-
gesting that the model adequately captures the underlying relationships
term influence.
without systematic deviation over time. These results support the reli-
According to the findings of the research, the following suggestions
ability and robustness of the model, affirming its suitability for analysis
would improve the sustainable economic development of China: Firstly,
and inference in the context of the research.
policy interventions should focus on optimizing the short-term benefits of
FDI while mitigating its long-term negative effects. This may involve
Table 7 implementing measures to ensure FDI aligns with sustainable develop-
Diagnostic and stability testing.
ment goals, such as promoting technology transfer, enhancing regulatory
Tests f-stat. p-values oversight, and diversifying sources of economic growth to reduce de-
[Breusch-Pagan-Godfrey: Heteroskedasticity Test] 0.4401 0.9363 pendency on FDI. Secondly, the connection between environmental
[Breusch-Pagan-Godfrey: Serial Correlation LM Test] 3.6729 0.3706 sustainability and economic development is emphasized by the favorable
[CUSUM test] Stable effect that CO2 emissions have on economic growth. Policymakers should
[CUSUM of squares test] Stable
place a high premium on the use of renewable energy sources, the shift to

7
M. Sagheer, A. Ashraf Innovation and Green Development 3 (2024) 100171

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Funding statement Chen, H., Tackie, E. A., Ahakwa, I., Musah, M., Salakpi, A., Alfred, M., & Atingabili, S.
(2022). Does energy consumption, economic growth, urbanization, and population
growth influence carbon emissions in the BRICS? Evidence from panel models robust
No funding was received for conducting this study. to cross-sectional dependence and slope heterogeneity. Environmental Science and
Pollution Research, 29(25), 37598–37616.
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Muneeb Sagheer: Writing – original draft, Software, Methodology, Emara, N., & Zecheru, D. (2024). Asymmetric threshold effects of digitization on inflation
in emerging markets. Financial Innovation, 10(1), 32.
Investigation, Formal analysis, Data curation, Conceptualization. Alia
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Ashraf: Writing – review & editing, Visualization, Investigation. Representation, estimation, and testing. Econometrica: Journal of the Econometric
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Fazaalloh, A. M. (2024). FDI and economic growth in Indonesia: A provincial and sectoral
analysis. Journal of Economic Structures, 13(1), 3.
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