Promoting Energy Efficiency Through Foreign Direct Investments: Evidence from South Asian Countries
Economics, Law, and Institutions in Asia Pacific
This study investigates the impact of foreign direct investment on industrial energy intensity by incorporating economic growth, energy prices, industrial value-added, and carbon emissions in the South Asian countries for the period 1990–2018. We employ panel fully modified ordinary least square and dynamic ordinary least square. Our empirical results find that a stable foreign direct investment (FDI) and industrial energy intensity nexus exists and a 1% increase in FDI reduces total industrial energy intensity by 0.02%. Furthermore, this study applies the vector error correction model Granger causality test, results show that there is a bidirectional causal relationship between industrial energy intensity and FDI, and an unidirectional Granger causality running from industrial value-added and carbon emissions to industrial energy consumption in the long-run. In the short-run, the findings show the two-way causality between industrial energy intensity and foreign direct investment. Furthermore, a causal association from economic growth to FDI and carbon emissions. Based on empirical evidence, this study suggest that energy efficiency policies should be implemented for a sustainable development, environmental benefits, improving energy intensity will lead to long-term growth gains.
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