There is much discussion on the non-linear relationship between economic growth and carbon dioxide (CO₂) emissions. Additionally, the effects of Foreign Direct Investment (FDI) on the environment are ambiguous, as both beneficial (i.e., pollution-halo) and harmful (i.e., pollution-haven) effects were found. Therefore, the literature presents no consensus on either of these topics. This is especially problematic for developing regions, as these regions represent growing economies interested in receiving foreign investments, and their CO₂-related research is limited. This study aims to understand the impacts of economic growth and FDI on the CO₂ emissions of São Paulo state, Brazil. To perform this study, a unique dataset on regional FDI was built, and 592 municipalities were included. The analyses combine linear and non-linear estimations, and the results suggest a non-linear relationship between Gross Domestic Product (GDP) per capita and CO₂ emissions, along with a negative association between FDI and CO₂. Finally, this study discusses possible policy implications and contributes to the international literature.

Many emerging economies seek to increase their Foreign Direct Investment (FDI) inflows to achieve some promised benefits, such as economic growth and advanced technologies. Nevertheless, FDI does not represent a random investment decision, and international literature demonstrates that foreign investors are mostly interested in fast-growing regions. Therefore, this study uses traditional panel data econometrics coupled with Data Envelopment Analysis (DEA) to investigate the environmental impact in regions with great potential to attract foreign investments (e.g., more advanced regions with growing infrastructure), therefore analyzing the environmental cost of attracting FDI. Additionally, this study employs regional data from the ‘Atlas of FDI in the State of São Paulo’ to investigate the environmental effects of FDI in the periphery, where attractiveness levels are low. The results indicate that regions with higher attractiveness levels prepare a pollutant development strategy and that FDI in less-developed regions is harmful to the environment. The results point to new perspectives on the FDI–environment debate and suggest that attracting FDI is environmentally costly. Also, FDI is heterogeneous, with its presence in peripheral areas being harmful to the environment. To conclude, we discuss these results and present an agenda for future research.

Foreign Direct Investment (FDI) is seen as a significant driver of economic growth and a potential ally in the struggle against poverty and inequality, making emerging countries focus on attracting this type of investment. Thus, understanding factors that impact the concentration of regional FDI is essential to verifying which characteristics encourage or deter foreign investment. Likewise, the literature has explored institutional factors such as corruption as determining factors for the concentration of FDI. Within this framework, this study aims to empirically examine the sensitivity of multinational enterprises (MNEs) to corruption. Few studies have been carried out on this subject, mainly in Latin American economies. We employ a unique Brazilian municipality-level FDI database to investigate whether corruption hinders (i.e., corruption acting as “sand”) or promotes the concentration of foreign investment (i.e., corruption acting like “grease”). Additionally, we believe that analyzing different economic sectors is essential to deepening the knowledge about the impacts of corruption on FDI. Our results show that corruption acts as “grease” for both overall FDI and at the level of individual sectors. Finally, when taking a non-linear approach, our findings show that corruption acts as grease for FDI only in regions with intermediate (medium–low) levels of corruption.