Asymmetric Effects of Fiscal Policy and Foreign Direct Investment Inflows on CO₂ Emissions—An Application of Nonlinear ARDL

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

The research draws a positive correlation between FDI and low emissions, and a negative correlation between "economic growth and financial development' and low emissions. The paper was lacking in the definition of terms. There is also no acknowledgment of the obvious link between FDI and internal economic growth and financial development. There is no linear distinction between external and internal investments. When investments flow into countries, they flow into carbon intensive and non-carbon intensive ventures on multiple levels directly or indirectly. It is also difficult to clearly attribute growth or reduction in emissions specifically to specific forms of investments.

Author Response

Thank you for your thoughtful feedback.

We appreciate your observation about the complexity of attributing emissions changes to specific forms of investment. In our study, the primary focus is on how fiscal policy (GOEX), FDI inflows, and other drivers such as trade openness, financial development, and economic growth affect environmental quality. To address your concerns, we have clarified the definitions of the key variables in the revised manuscript and emphasized that our analysis follows established literature, which typically examines FDI inflows (% of GDP) without distinguishing between external and internal investments. For example, studies by Malik et al. (2020) and Odugbesan & Adebayo (2020) adopt similar measures. While we acknowledge the potential significance of distinguishing specific forms of FDI, this would require a more detailed dataset and is beyond the scope of the current research. However, we recognize it as a promising avenue for future studies to explore the nonlinear effects of FDI on environmental quality.

We have added a potential research direction addressing these points in the revised manuscript on lines [648-652].

Ref: Malik, M. Y., Latif, K., Khan, Z., Butt, H. D., Hussain, M., & Nadeem, M. A. (2020). Symmetric and asymmetric impact of oil price, FDI and economic growth on carbon emission in Pakistan: Evidence from ARDL and non-linear ARDL approach. Science of the Total Environment, 726, 138421.

Odugbesan, J. A., & Adebayo, T. S. (2020). The symmetrical and asymmetrical effects of foreign direct investment and financial development on carbon emission: evidence from Nigeria. SN Applied Sciences, 2(12), 1982.

We are grateful for these insights, which have significantly strengthened our analysis and improved the clarity of our arguments. Thank you for your time and expertise in reviewing our work.

Author Response File: Author Response.pdf

Reviewer 2 Report

Comments and Suggestions for Authors

Thank you for the opportunity to review this paper.

Although the paper “Asymmetric effects of fiscal policy and foreign direct investment inflows on CO2 emissions – An application of non-linear ARDL” addresses a timely and significant topic within the field of sustainability—namely, the asymmetric analysis of fiscal policies and foreign direct investment (FDI) in relation to CO₂ emissions—its scientific contribution exhibits certain issues that can, however, be rectified:

11. While the impact of FDI and fiscal policies on the environment is a well-researched topic, the authors, in my opinion, do not sufficiently highlight the novel aspects of their research. A more explicit discussion of how the methodology employed or the obtained results provide unique value compared to previous studies would be beneficial;

22. The interpretation of the results, in my view, is incomplete, particularly in the section addressing the asymmetric effects of FDI. For instance, the effects of “positive shocks” and “negative shocks” on CO₂ emissions are mentioned but are not sufficiently contextualized within Vietnam’s economic and political reality. There is no detailed discussion of the practical implications of the results, particularly for public policy. Therefore, I believe the authors should better connect their findings with the existing body of literature and expand the discussion section to thoroughly address the implications for environmental and fiscal policies;

33. Although the paper includes relevant sources, many are from before 2020, raising concerns about the currency of the literature reviewed. Furthermore, there is limited reference to regional or national sources that could support the study's specific focus on Vietnam. Consequently, I recommend updating the bibliography with more recent studies, including, where possible, works that focus on emerging economies in Southeast Asia;

44. Some sentences are excessively long and complex, which may hinder comprehension. For instance, sentences in the introduction and conclusion tend to combine multiple ideas without clearly separating them. Additionally, some statements suffer from redundancy, reiterating information already mentioned earlier. An example can be found in lines 398–408: “…positive shocks in foreign direct investment (FDI) can potentially decrease CO₂ emissions in Vietnam. This may be due to the fact that when multinational corporations with advanced green technologies invest in Vietnam, they often introduce their environmentally-friendly production processes and cleaner technologies.” A similar idea is repeated later in the same section: “…increased FDI in renewable energy projects, such as solar and wind farms, can directly contribute to reducing Vietnam's reliance on fossil fuels and decreasing CO₂ emissions from the power sector.” While these statements are accurate, they reiterate almost identical points about the positive effects of FDI on reducing emissions without introducing new information.

Another example of redundancy can be seen in lines 534–536: “…an analysis of the long-run impacts of alterations in government expenditure reveals that a positive shock in GOEX results in decreased emissions, whereas a negative disruption in GOEX leads to increased emissions.” This idea is repeated earlier in lines 411–413: “The long-term effects of changes in government spending show that any positive shock on GOEX leads to lower emissions, whereas any negative shock on GOEX causes higher emissions.” Although these sections belong to different parts of the paper (results and conclusions), the phrasing is nearly identical, leading to unnecessary redundancy in the text.

In conclusion, with certain revisions, the article has the potential to become a significant contribution to the sustainability literature.

Author Response

11. While the impact of FDI and fiscal policies on the environment is a well-researched topic, the authors, in my opinion, do not sufficiently highlight the novel aspects of their research. A more explicit discussion of how the methodology employed or the obtained results provide unique value compared to previous studies would be beneficial;

Responses:

We thank the reviewer for this valuable suggestion. In the revised manuscript (Lines 103-113 and 118-124), we have expanded our discussion regarding the unique contributions of our methodology. Specifically, our use of the nonlinear ARDL approach allows us to capture the asymmetric effects of fiscal policy and FDI inflows on environmental quality—effects that conventional linear models, which assume a constant and symmetric relationship between variables regardless of the shock direction or magnitude, are unable to reveal. By differentiating between positive and negative shocks, our approach provides a more nuanced understanding of how variations in government spending and foreign investment, along with trade openness, financial development, and economic growth, influence CO₂ emissions in Vietnam. This methodological enhancement not only improves the robustness of our empirical findings but also offers a distinct contribution to the literature by elucidating the nonlinear dynamics underlying these relationships.

22. The interpretation of the results, in my view, is incomplete, particularly in the section addressing the asymmetric effects of FDI. For instance, the effects of “positive shocks” and “negative shocks” on CO2 emissions are mentioned but are not sufficiently contextualized within Vietnam’s economic and political reality. There is no detailed discussion of the practical implications of the results, particularly for public policy. Therefore, I believe the authors should better connect their findings with the existing body of literature and expand the discussion section to thoroughly address the implications for environmental and fiscal policies;

Responses:

We thank the reviewer for this insightful comment. In the revised manuscript (Line 228-235 & 237-244), we have explicitly contextualized the effects of positive and negative shocks within Vietnam’s unique economic and political framework. We have also broadened our discussion regarding the practical implications of our findings for public policy, particularly in relation to the asymmetric effects of FDI on CO₂ emissions in the revised manuscript (Line 463-471).

33. Although the paper includes relevant sources, many are from before 2020, raising concerns about the currency of the literature reviewed. Furthermore, there is limited reference to regional or national sources that could support the study's specific focus on Vietnam. Consequently, I recommend updating the bibliography with more recent studies, including, where possible, works that focus on emerging economies in Southeast Asia;

Responses:

We thank the reviewer for this valuable suggestion. In the revised manuscript (Line 210-222), we have expanded the bibliography to incorporate more recent studies that focus on emerging economies, specifically in Southeast Asia, to provide further context and support for the study's specific focus on Vietnam. In addition, we have also updated our bibliography (highlighted yellow in the revised manuscript) to incorporate additional citations from 2020 to the present. These references provide more contemporary insights and reinforce the relevance of our study within the current academic discourse.

44. Some sentences are excessively long and complex, which may hinder comprehension. For instance, sentences in the introduction and conclusion tend to combine multiple ideas without clearly separating them. Additionally, some statements suffer from redundancy, reiterating information already mentioned earlier. An example can be found in lines 398–408: “…positive shocks in foreign direct investment (FDI) can potentially decrease CO2 emissions in Vietnam. This may be due to the fact that when multinational corporations with advanced green technologies invest in Vietnam, they often introduce their environmentally-friendly production processes and cleaner technologies.” A similar idea is repeated later in the same section: “…increased FDI in renewable energy projects, such as solar and wind farms, can directly contribute to reducing Vietnam's reliance on fossil fuels and decreasing CO2 emissions from the power sector.” While these statements are accurate, they reiterate almost identical points about the positive effects of FDI on reducing emissions without introducing new information.

Another example of redundancy can be seen in lines 534–536: “…an analysis of the long-run impacts of alterations in government expenditure reveals that a positive shock in GOEX results in decreased emissions, whereas a negative disruption in GOEX leads to increased emissions.” This idea is repeated earlier in lines 411–413: “The long-term effects of changes in government spending show that any positive shock on GOEX leads to lower emissions, whereas any negative shock on GOEX causes higher emissions.” Although these sections belong to different parts of the paper (results and conclusions), the phrasing is nearly identical, leading to unnecessary redundancy in the text.

Responses:

We thank the reviewer for this thoughtful feedback. In response, we have revised the relevant parts to streamline and simplify the language, ensuring clear idea. We have also removed redundant statements regarding the positive effects of FDI on reducing emissions and the impact of GOEX on CO2 emissions. These modifications improve overall clarity and conciseness without compromising the integrity of our findings (Line 451-462 and 472-474).

We are grateful for your careful review and thoughtful suggestions, particularly regarding the methodological framework and the need for a more explicit discussion on how our findings contribute to the existing literature. Your recommendations have allowed us to refine our analysis and provide a clearer justification for our approach.

Author Response File: Author Response.pdf

Reviewer 3 Report

Comments and Suggestions for Authors

Dear authors,

I have the following comments that I would like to share to improve the manuscript.

-The data is for 1990-2022 and is slightly out of date, please update to at least 2023.

-In the Section 2, the titles of 2.1 and 2.2 are the same. Please check it.

-In the Section 4, there are two 4.3. Please check that the serial numbers and content of the titles are correct.

-The paper lists the various factors that can affect carbon emissions, but there is no obvious explanation of how each factor works. Moreover, there is no mechanism analysis between the different variables.

-Please explain why foreign direct investment reduces carbon emissions but domestic credit increases them. Both are forms of financial investment, so why do they have opposite effects? Is this because domestic firms are not as green as foreign firms because their carbon emissions are too high?

-In Section 5 line 546, the authors mentioned that “adapting fiscal policy is essential, with increased government investment in public goods such as healthcare and education”. However, there is no heterogeneity analysis of different industries in the paper.

Author Response

1. The data is for 1990-2022 and is slightly out of date, please update to at least 2023.

Responses:

We thank the reviewer for the suggestion. In our revised manuscript (Lines 309-310), we have clarified that our study period of 1990–2022 was selected based on the availability of complete data across all relevant variables. In particular, key indicators, such as financial development sourced from the World Development Indicators (WDI), are only available up to 2022, ensuring a robust and consistent dataset for analysis. Consequently, incorporating 2023 data was not feasible due to gaps in the available information. We believe that the chosen period provides sufficient observations to support our findings while maintaining data integrity.

2. In the Section 2, the titles of 2.1 and 2.2 are the same. Please check it. In the Section 4, there are two 4.3. Please check that the serial numbers and content of the titles are correct.

Responses:

We thank the reviewer for pointing this out. We apologize for the oversight. Upon review, we have corrected the titles in Section 2 to ensure they are distinct and accurately reflect the content of each subsection. We have corrected the numbering for Section 4, ensuring that the titles and content are properly aligned and numbered sequentially. We appreciate your careful review and attention to detail. These changes have been made in the revised manuscript (Lines 130, 182, 419, 541, 557).

3. The paper lists the various factors that can affect carbon emissions, but there is no obvious explanation of how each factor works. Moreover, there is no mechanism analysis between the different variables.

Responses:

We appreciate the reviewer's valuable comment. In the revised manuscript (Lines 258-260, 263-266, 278-283), we have expanded the discussion to provide a more detailed explanation of how factor such as financial development and trade openess influences carbon emissions. We believe these enhancements can provide a clearer understanding of the potential causal mechanisms at play and address the reviewer's concerns and significantly improve the overall clarity and rigor of our analysis.

4. Please explain why foreign direct investment reduces carbon emissions but domestic credit increases them. Both are forms of financial investment, so why do they have opposite effects? Is this because domestic firms are not as green as foreign firms because their carbon emissions are too high?

Responses:

We appreciate the reviewer's insightful question. Our findings indicate that FDI and domestic credit influence carbon emissions in distinct ways due to the underlying characteristics and purposes of these financial flows. FDI typically involves multinational corporations that often bring with them advanced green technologies, stricter environmental practices, and access to international best practices. These firms are subject to global environmental standards, which tend to promote energy efficiency and reduce emissions through technology spillovers, as documented in several studies. In contrast, domestic credit primarily supports local enterprises, which may not have the same incentives or access to cleaner technologies. Domestic financial institutions often allocate credit to sectors that rely on conventional, energy-intensive production methods, and they may lack rigorous mechanisms for incorporating environmental risk assessments. This difference in the allocation of financial resources contributes to the higher carbon footprint observed in domestically financed activities. Thus, it is not merely that domestic firms are inherently less green, but rather that the nature of domestic credit financing tends to support traditional, less sustainable production, while FDI channels funds into greener, more technology-driven sectors.

We integrate these enhancements in the revised manuscript (Lines 524-530) to address the reviewer's concerns and significantly improve the overall clarity of our results.

5. In Section 5 line 546, the authors mentioned that “adapting fiscal policy is essential, with increased government investment in public goods such as healthcare and education”. However, there is no heterogeneity analysis of different industries in the paper.

Responses:

We sincerely appreciate the reviewer’s valuable suggestion. Government investment in public goods such as healthcare and education is a crucial policy in Vietnam, playing a significant role in reducing carbon emissions. Increased spending in these sectors enhances human capital, promotes technological advancements, and encourages energy-efficient practices, ultimately contributing to a more sustainable economic structure. While our study focuses on the overall impact of fiscal policy on environmental quality, we acknowledge that a heterogeneity analysis across different industries would provide deeper insights. Future research could disaggregate government expenditure into specific sectors, such as infrastructure, manufacturing, and renewable energy, to further examine the sector-specific environmental effects of fiscal policy (see Line 636-641).

We greatly appreciate your keen attention to the theoretical implications of our study. Your recommendations regarding the need for a more nuanced discussion of the mechanisms driving the relationships we examine have led us to strengthen our theoretical framework and provide a clearer articulation of policy implications.

Author Response File: Author Response.pdf

Round 2

Reviewer 2 Report

Comments and Suggestions for Authors

In my opinion, the manuscript entitled "Asymmetric effects of fiscal policy and foreign direct investment inflows on CO₂ emissions - An application of non-linear ARDL" has been sufficiently improved. As such, I recommend publication in present form. 

Author Response

Dear esteemed anonymous reviewer,

We sincerely appreciate your time and effort in reviewing our manuscript. Your insightful comments and constructive feedback have been invaluable in improving the quality and clarity of our work. We are grateful for your recommendation for publication and truly appreciate your recognition of our revisions. Thank you for your thoughtful evaluation and support throughout the review process.

Best regards,

Dr. Thanh Phuc Nguyen, Corresponding author, Van Lang University, Vietnam