Impact of Foreign Direct Investment on Energy Consumption: Empirical Evidence

Abstract

The paper investigates the association between foreign direct investment (FDI) and energy consumption within the purview of trade liberalization and economic growth from1971 to2014 in Bangladesh, employing the Auto Regressive Distributive Lag (ARDL) bounds testing approach. The study result depicts a negative impact of FDI on energy consumption in both the long and short run. Moreover, the study results persist robust to alternative measurements and estimators. Furthermore, a unidirectional causal relationship moving from energy consumption to foreign direct investment supports the institutional strength of the energy sector. Therefore, policymakers should undertake a pragmatic policy for the best utilization of FDI in the energy sector and reinforce local firms’ absorptive capability to internalize FDI-centric information spillover in energy conservation.

Keywords

• FDI
• energy consumption
• ARDL
• Bangladesh