EXPLORING LINKS BETWEEN FDI INFLOWS, ENERGY CONSUMPTION, AND ECONOMIC GROWTH: FURTHER EVIDENCE FROM MENA COUNTRIES

Abstract

(ProQuest: ... denotes formulae omitted.)1. INTRODUCTIONThe relationship between energy consumption, foreign direct investment as well as energy consumption and economic growth has been the subject of considerable academic research over the past few decades (Omri and Kahouli, 2014). Several studies have focused on different countries, time periods, modeling techniques and different proxy variables which have been used to determine the links between FDI inflows, energy consumption and economic growth. Roughly, we can categorize past studies into three lines of research.The first line focuses on the relationship between energy consumption and economic growth. The relationship between energy consumption and economic growth has become a hot topic in environmental science and energy economics (Kraft and Kraft, 1978). A large volume of empirical research from the last two decades has found that economic growth and energy consumption may be jointly determined (e.g. Omri, 2013; Ahmed and Azam, 2016). Most of the empirical results indicated that higher economic growth requires more energy consumption (see, inter alia, Glasure, 2002; Ghali and El-Sakka, 2004; Akinlo, 2008; Apergis and Payne, 2009; Omri, 2013; Achour and Belloumi, 2016). They also indicated that economic growth can indeed cause increases in energy consumption. Moreover, more efficient energy use needs a higher level of economic growth (e.g. Chan and Lee, 1996; Aqeel and Butt, 2001; Wei, 2002; Halicioglu, 2007; Chang et al., 2009; Shabbir et al., 2014; Saidi and Hammami, 2015; Jammaz and Aloui, 2015; Komal and Abbas, 2015; Iyke, 2016).The second line of research investigated the correlation between the FDI inflows and economic growth has been subject to rigorous research for years. According to the FDI-led growth hypothesis, FDI inflows can stimulate growth for the host countries by increasing the capital stock, creating new job opportunities, and easing the transfer of technology (see, inter alia, Borensztein et al., 1998; De Gregorio, 2003; De Mello, 1997; Ekanayake et al., 2003; Tsang and Yip, 2007; Omri and Kahouli, 2013; Abbes et al., 2015; Abdouli and Hammami, 2015). In turn, higher economic growth creates new investment opportunities in the host country and can also cause larger inflows of FDI (e.g. Tsai, 1994; Rodrik, 1999; Kim and Seo, 2003; Mah, 2010; Anwar and Sun, 2011; Omri and Kahouli, 2014; Omri et al., 2015).The third line of research examined the link between foreign direct investment and energy consumption. Several studies have found that the FDI inflows induce energy consumption through the expansion of industrialization, transportation and manufacturing sector development while energy consumption is required to support the manufacturing process (e.g. Mielnik and Goldemberg, 2000; Mielnik and Goldemberg, 2000; Tang, 2009; Sadorsky, 2010; Bekhet and Othman, 2011; Omri and kahouli, 2014; Doytch and Narayan, 2016).The main objective of this paper is to investigate the relationship between FDI inflows, energy consumption, and economic growth for a panel of 17 MENA countries over the 1990-2012 period. We used the simultaneous equation model based on structural modeling to produce new evidence on the links between FDI inflows, energy consumption and economic growth. The introduction of the function of Cobb-Douglas production framework helped us to explore the causal relationships between the fallowing variables: FDI inflows, energy consumption, and economic growth in a growth framework.The contribution of this paper to the existing literature is expressed by giving the first integrated approach to examine the three-way linkages between FDI inflows, energy consumption and economic growth in the MENA region. Particularly, this paper uses three structural equation models, which allow us ne to simultaneously examine the impact of (i) economic growth and energy consumption on FDI inflows (ii) economic growth and FDI inflows on energy consumption (iii) energy consumption and FDI inflows on economic growth. …