Does foreign direct investment promote renewable energy use? An insight from West African countries

Abstract

Renewable energy (RE) is considered as one of the best alternative energy sources, which is friendly to the environment. The use of RE, reduces carbon emissions (CE) and its devastating effects to the environment. In line with the United Nations’ Sustainable Development Goals, nations should come up with ways to develop RE projects, in order to achieve the carbon neutrality goal. The current research is aimed at investigating factors that promote RE use in the developing countries. The major novelty of this study, is that, it seeks to investigate the impact of foreign direct investment (FDI) on RE, in the 15 west African countries, from 1990 – 2021. A review of past studies, shows a dearth of researches which examines the impact of financial development on RE development, in this region. The current research uses, second-generation methods of data analysis that are strong in the presence of cross-sectional dependence, hence robust results are obtained. Panel ARDL (PMG, MG & DFE) model is employed to obtain the short-run and long-run coefficients of the model. The major findings of the study are as follows: GDP does not significantly impact RE, in both short-run and long-run; FDI and public sector credit, have a significant positive effect on RE use in the long-run, while inflation rate and broad money have a significant negative long-run and significant positive short-run effect on RE use. Poor-financial resource countries must encourage FDI inflows to promote RE development.