Foreign Direct Investment and Energy Demands: What Drives Economic Growth in Emerging Economies?

Abstract

This study addresses two central questions: (a) Do inward foreign direct investment (FDI) spillovers drive economic growth in emerging economies? and (b) How do the interconnectedness of inward FDI and energy demands cause economic growthin emerging economies? For the analysis, the study uses data from the World Development Indicators and Penn World Table 10.0, covering the period between 1994 and 2019. The results show evidence of bi-directional causality between inward FDI spillover and economic growth, and the relationships are negative. These results indicate that FDI inflows are less critical in economic growth in emerging economies and vice versa. Furthermore, non-renewable energy positively causes both economic growth and FDI inflows, whereas renewable energy negatively causes economic growth. More so, our results reveal a presence of bi-directional causality between FDI inflows and renewable energy in emerging economies. Finally, as these empirical insights have profound implications for governments and policymakers in these economies, the article proposes policies targeting sustainable economic growth and diffusions of renewable energy technologies through inward FDI spillover. JEL Codes: 047, F35, P18, P52, C10