The Green Frontier: How Foreign Direct Investment and Knowledge Economy Innovations Drive Effective Carbon Management

Adam, Ibrahim ORCID: https://orcid.org/0009-0001-0327-4133 and Amoah, Joseph Owusu ORCID: https://orcid.org/0000-0002-7031-1926 (2025) The Green Frontier: How Foreign Direct Investment and Knowledge Economy Innovations Drive Effective Carbon Management. Journal of the Knowledge Economy.

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Abstract

As countries grapple with the dual challenge of attracting investment and mitigating environmental degradation, understanding the nuanced role of foreign direct investment (FDI) in shaping carbon emissions has become increasingly urgent, particularly in resource-dependent regions like the Middle East and North Africa (MENA). This study examines the complex relationship between FDI and carbon emissions in the MENA region, focusing on the mediating role of economic growth and the moderating role of renewable energy adoption. Drawing on the Pollution Haven Hypothesis and the Environmental Kuznets Curve framework, the study employs a dynamic panel model using data from 17 MENA countries between 1990 and 2022. The results reveal that while FDI inflows significantly increase carbon emissions, FDI outflows contribute to emissions reduction, likely through technological spillovers and international policy learning. The analysis confirms a non-linear (inverted U-shaped) relationship between FDI and emissions, highlighting that environmental impacts vary with stages of development. Economic growth is shown to mediate the FDI–emissions link, while renewable energy adoption moderates it by reducing emissions intensity. Heterogeneity analysis further indicates that these effects differ by income level and regional context. The study advances existing theory by introducing a moderated mediation framework and disaggregating FDI flows, offering deeper insight into the conditional pathways through which investment affects environmental outcomes. Policy recommendations emphasize the need for context-specific investment strategies, stronger regulatory frameworks, and the integration of clean energy to ensure that FDI supports inclusive and sustainable development in line with SDG 13 and broader climate goals.