BIOMASS ENERGY CONSUMPTION AND FOREIGN DIRECT INVESTMENTS: EVIDENCE FROM DEVELOPED AND DEVELOPING COUNTRIES

Abstract

Energy is one of the basic building blocks in the economic system of countries. Major environmental problems such as fluctuations in energy prices, insufficient energy resources, global warming and climate change have steered countries towards alternative energy sources like modern biomass energy. As a result, countries have been compelled to revise the structure of the basic macroeconomic indicators that constitute the trajectory of the economic system, such as foreign direct investments (FDI) and economic growth (EG) with regard to alternative energy sources. The causality relationship between biomass energy consumption (BEC) and FDI inflows in the country groups classified as lower-middle, upper-middle and high-income by the World Bank for the period 1970-2017 is examined in the study. According to the findings obtained, it is understood that causality from BEC to FDI in all three countries, whereas causality from FDI to BEC disappears as the income levels of the countries increase. This findings put forward that there is a transition from growth hypothesis to feedback hypothesis as income level decreases.