Investigating the Impact of Foreign Direct Investment on the Economy and Environment in Iran: Application of the Computable General Equilibrium (CGE) Model

Authors
mostafa gholami
Zeinolabedin Sadeghi
Seyyed Abdul Majid Jalaee Esfandabadi
Mehdi Nejati
Faculty of Management and Economics, Shahid Bahonar University of Kerman, Kerman, Iran.
Abstract
One of the most important goals of policymakers is to increase the rate of economic growth while keeping the environment clean, which is possible through the use of modern technologies and the influx of capital into the country. Foreign direct investment (FDI) is an important source for promoting energy-efficient technologies around the world. One of the most important issues in today's world, especially in developing countries, including Iran, is securing the necessary capital to advance economic and environmental goals. For this reason, the present study examines the effects of foreign direct investment on macroeconomic and environmental variables using a computable general equilibrium static model. Two scenarios have been analyzed and examined as the effects of a doubling of FDI, one on the electricity sector and the other on the entire economy. The results showed that in both scenarios, economic growth increased and the general level of prices decreased, but the effect was greater in the second scenario. Electricity production also increased in both scenarios. But household welfare has decreased with increasing foreign direct investment. In the carbon emission variable, the pollution halo hypothesis is confirmed in the first scenario, and the pollution haven hypothesis is confirmed in the second scenario. It is suggested that the government, in addition to providing domestic platforms for the entry of foreign capital, also pay due attention to domestic capital owners.
Keywords
Foreign Direct Investment
Economic Growth
Environment
Computable general equilibrium model
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