Nexus between foreign direct investment, gross capital formation, financial development and renewable energy consumption: evidence from panel data estimation

Abstract

This research examines the correlation between foreign direct investment (FDI), gross capital formation (GCF), financial development, and renewable energy consumption (REC). The research utilizes the CS-ARDL and NARDL estimates to identify a strong and statistically significant connection, both in the long-term and short-term, between Foreign Direct Investment (FDI), Gross Capital Formation (GCF), financial development, and Regional Economic Cooperation (REC). More precisely, a 10% alteration in Foreign Direct Investment (FDI) leads to a 1.545% augmentation in Research and Development Expenditure (REC) over an extended period of time, and a 0.735% boost in the immediate term. Likewise, favorable (unfavorable) advancements in foreign direct investment (FDI) hasten (diminish) the pace of economic growth in the long term. The analysis also demonstrates a strong and statistically significant relationship between GCF and REC, highlighting the advantageous impact of domestic capital creation on the integration of clean energy. Moreover, it reveals a favorable correlation between financial development and REC, indicating that the financial incentives enabled by financial development have a crucial impact on encouraging the use of renewable energy. These results are consistent with previous research and have important consequences for the connection between foreign direct investment (FDI), gross capital formation (GCF), financial development, and sustainable energy. Nonetheless, the study highlights the importance of taking into account the nature and caliber of foreign direct investment (FDI) inflows, the influence of fair and sustainable growth in the renewable energy sector on the environment and society, and the possible environmental and social consequences of renewable energy projects fueled by domestic capital expansion. Furthermore, it emphasizes the need of well-rounded policy frameworks and governance mechanisms to guarantee that foreign direct investment (FDI), green climate fund (GCF), and financial development effectively contribute to equitable and sustainable growth in the consumption of renewable energy. The study's findings offer valuable insights on how to effectively use foreign direct investment (FDI), global climate finance (GCF), and financial development to increase the use of renewable energy. However, it also emphasizes the importance of carefully evaluating the wider consequences and related factors in order to develop sustainable strategies for promoting renewable energy consumption.