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Promoting Energy Efficiency Through Foreign Direct Investments: Evidence from South Asian Countries

In: Energy Efficiency Financing and Market-Based Instruments

Author

Listed:
  • Rabindra Nepal

    (University of Wollongong)

  • Nirash Paija

    (Tribhuvan University)

  • Farhad Tagihizadeh-Hesary

    (Social Science Research Institute, Tokai University)

  • Abiral Khatri

    (Erasmus University)

Abstract

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.

Suggested Citation

  • Rabindra Nepal & Nirash Paija & Farhad Tagihizadeh-Hesary & Abiral Khatri, 2021. "Promoting Energy Efficiency Through Foreign Direct Investments: Evidence from South Asian Countries," Economics, Law, and Institutions in Asia Pacific, in: Yang Liu & Farhad Taghizadeh-Hesary & Naoyuki Yoshino (ed.), Energy Efficiency Financing and Market-Based Instruments, chapter 0, pages 151-171, Springer.
    • Handle: RePEc:spr:eclchp:978-981-16-3599-1_7
    DOI: 10.1007/978-981-16-3599-1_7
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    More about this item

    Keywords

    Industrial energy intensity; Foreign direct investment; Energy prices; DOLS; FMOLS; South Asia;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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