Can China's trade and investment facilitate renewable energy consumption in Africa?

Abstract

Although several studies have investigated the impact of international trade and foreign direct investment (FDI) on energy consumption in Africa, extensive analyses from a renewable energy perspective are scarce. Moreover, the influence of Chinese FDI and trade on renewable energy consumption is quite inexistent. To fill the gap in the energy economics literature, this study empirically investigates the impact of China's trade and FDI on renewable energy consumption in 40 African countries over the period 2003 to 2016. The panel corrected standard errors estimation method is adopted. Additionally, panel causality tests are used to show the long-run relationship among the variables. The results revealed that both imports and outward direct investment from China had been positively associated with renewable energy consumption. However, exports to China were negatively related to renewable energy consumption. The results further reveal that economic growth and financial market developments are found to be ideal for promoting renewable energy consumption. The panel causality results show that there are significant bidirectional causalities between renewable energy consumption and economic growth. The results suggest that trade and investment policies should be integrated with renewable energy policy in order to achieve sustainable development. Besides, it is also important to adopt sound macroeconomic policies which promote economic growth and financial market development.