Foreign direct investment inflows and energy diversification in emerging seven economies: evidence from a panel data analysis

Abstract

PurposeHigher economic growth accompanied by rising energy demand poses severe challenges to the long-term environmental sustainability of E7 economies, including Brazil, China, India, Indonesia, Mexico, Russia and Turkey. Thus, this paper explores the influence of foreign direct investment (FDI) inflows on energy diversification for E7 economies.Design/methodology/approachThe dataset is panel data for emerging seven (E7) economies, covering the period 1992–2017. The empirical investigation relies on econometric techniques: panel cointegration test and panel autoregressive distributed lag model.FindingsThe findings reveal that energy diversification and FDI inflows are cointegrated. In the long run, higher FDI inflows encourage energy diversification, but energy efficiency improvements discourage energy diversification. In the short run, the effects of FDI inflows on energy diversification vary across E7 economies, highlighting the role of country-specific factors in determining the short-run influence of FDI inflows on energy diversification.Research limitations/implicationsThe findings suggested that FDI policies should encourage the adoption of nonconventional energy resources to stimulate energy diversification in E7 economies. Besides, better coordination between energy diversification and energy efficiency policies is required in the long run for a successful transition towards low-carbon economy goals.Originality/valueThis study is a unique empirical exercise that uncovers a cointegrating relationship between energy diversification and FDI inflows for E7 economies. Moreover, the analysis provides homogenous long-run and heterogeneous (country-specific) short-run coefficient estimates for the effect of FDI inflows on energy diversification.

Do environmental taxes, environmental innovation, and energy resources matter for environmental sustainability: Evidence of five sustainable economies

“…Recent research has identified probable causes of environmental deterioration and proposed various countermeasures to reduce emissions, specifically consumption-based carbon emissions (CBCO 2 ). For instance, energy consumption has been identified as the primary driver of environmental deterioration [ 9 , 10 ], urbanization [ 11 ], foreign direct investment [ 12 ], financial development and innovation [ 13 , 14 ]. Carbon dioxide emissions have increased unprecedentedly in recent years and are now considered 50 % higher than at the start of the great industrial revolution [ 15 ].…”

Designing energy policy in the presence of underground economy: the case of Pakistan

“…Moreover, energy–growth nexus and its economic consequences and implications is widely studied (see, e.g. Irfan and Ojha, 2022; Carmona et al. , 2017; Tiba and Omri, 2017; Bruns et al.…”

“…Moreover, energy-growth nexus and its economic consequences and implications is widely studied (see, e.g. Irfan and Ojha, 2022;Carmona et al, 2017;Tiba and Omri, 2017;Bruns et al, 2014;Omri, 2014;Ozturk, 2010) but examining energy-growth nexus without considering the role of informal sector can cause misleading results as the underground economy represents large share of GDP, especially in emerging economies (Hassan and Schneider, 2016). Since the two-third of income earned in the underground economy is usually spent in the formal economy (Williams and Schneider, 2016;Schneider and Enste, 2000), it is reasonable to expect that a significant portion of informal income is spent on energy consumption.…”