An Examination of FDI’s Moderating Effect on Finance, Growth and Energy Nexus in BRICS

The objective of the study was to analyse the connection among renewable energy consumption, financial development and economic growth with particular attention paid to the moderating role of foreign direct investment. The study employed panel data from the BRICS[1] countries over the period 1995-2022. The panel regression approach took into account the interaction term which captured the moderating impact of FDI on the growth-finance-energy nexus. The outcome of the study revealed that economic growth had a positive impact on REC which implied that as economies grow, consumption of clean energy also increases. In addition, FDI on its own exerted a positive impact on REC, emphasising its significant role in permitting capital inflows, innovation as well as technological transfer. However, the interaction between FDI and GDP revealed a negative moderation role which can be explained by the fact that when FDI is the dominant component of GDP, its effects are likely to divert resources away from sustainable energy investments to non-renewable based industries. Furthermore, the results of the study highlighted that urbanization and inflation also promoted REC, whilst trade and natural resource rents suppress it, implying that the resource curse hypothesis holds water within BRICS economies. As part of the recommendations, BRICS nations are encouraged to adopt policies which ensure that FDI flows to sustainable energy initiatives, cut their dependence on resource rents and strengthen financial systems to better support clean energy initiatives. The introduction of FDI as a moderating factor in the growth-finance-energy link and the policy guidance provided are the key contributions of this paper to the literature.