Assessing the effectiveness of total foreign aid and foreign energy aid inflows on environmental quality in India

Highlights: • Assessing the effectiveness of foreign aid vs foreign energy aid on CO₂ emissions. • India's CO₂ emissions function is estimated using ARDL model for 1978–2014. • Foreign aid, energy use and globalisation improve India's environmental health. • Foreign energy aid inflows are not effective as it harms India's environmental quality. • Economic growth, FDI and remittances inflows also impede environmental quality. This paper empirically examines the relative effectiveness of total foreign aid and foreign energy aid inflows on CO2 emissions in India over the period of 1978-2014 by endogenising economic growth, energy consumption, globalisation, FDI and remittances inflows as additional factors in a carbon emissions function. The results emanating from the ARDL bounds test provides evidence of a significant long-run relationship among the variables. Interestingly, it is observed that the foreign aid inflows, globalisation, and energy consumption significantly reduce CO2 emissions, whereas foreign energy aid inflows, economic growth, FDI and remittances inflows induce it. From a climate mitigation policy perspective, the results suggest that the Indian government can focus more on receiving the inflow of total foreign aid than foreign energy aid to improve the environmental quality. Given the potentiality of total foreign aid in driving the quality of the environment in India, it may be argued that much more utilisation of total foreign aid needs to be directed towards long-run investment on environmental sustainability enhancing-driven clean energy projects for an emerging economy like India.