A controversy on the three fundamental growth determinants in selected CEE countries.

Abstract

The present study is a controversy on the three fundamental growth determinants. It contributes to the literature by divulging the effects of foreign direct investment and financial development on energy consumption in Central and Eastern European countries from 1990 to 2016. In doing so, second-generation multi-econometric methodological methods are adopted to conclude this study. The Pooled Means Group (PMG) estimation approach confirms that foreign direct investment is adversely associated with energy consumption. A one-point rise in FDI in the CEE region reduces energy consumption by 0.0172 points in the long run. Congruently, the globalization index also mitigates energy consumption. Conversely, financial development and economic growth stimulate energy consumption in the CEE region. Energy consumption boosts by 0.0626 points when a one-point escalation in financial development occurs. The U-shaped link between energy consumption and economic growth is revealed. The country-wise results show that energy consumption rises due to financial development and FDI in nine countries and one country. However, reduction in energy consumption occurs due to an upsurge of financial development in seven and FDI in six countries. Moreover, the causality results suggest that energy consumption causes financial development, and FDI. The policy suggestions are included to mitigate unsustainable energy consumption and renovate the energy policy in this region.