Unveiling the effects of sectoral clustering and foreign direct investment on greenhouse gas emissions: Evidence from 216 economies

Abstract

As global climate change escalates, anthropogenic warming has become one of the most serious threats to planetary sustainability. This study uses panel data from 216 economies covering the period from 1970 to 2019 to examine the heterogeneous effects of sectoral clustering (SC) including industrial agglomeration (IAGG), agricultural agglomeration (AAGG), and service agglomeration (SAGG), as well as foreign direct investment (FDI) on greenhouse gas emissions (GHGE). We employ a fixed-effects model to conduct a series of empirical tests including moderation analysis, mediation mechanisms, endogeneity analysis, and subsample robustness checks. The empirical findings reveal that IAGG significantly increases GHGE, AAGG significantly reduces GHGE, while SAGG shows no significant direct effect. FDI plays a moderating role and mitigates the GHGE enhancing effect of the IAGG, but weakens the GHGE reduction benefits of the AAGG. In addition, mediation analysis identifies different transmission channels and reveals factor allocation and resource flows can influence environmental outcomes. Robustness tests confirm consistent patterns, reinforcing the reliability of the main conclusions. This study provides important insights for developing differentiated policies on SC and FDI with environmental sustainability goals.