Toward a sustainable future: Examining the interconnectedness among Foreign Direct Investment (FDI), urbanization, trade openness, economic growth, and energy usage in Australia

Abstract

The energy demand in Australia is increasing with the industrialization and rapid economic growth. This study analyzed the relationships among the economic growth, Foreign Direct Investment (FDI), trade openness, urbanization, and energy usage in Australia based on the data from World Development Indicators (WDI) from 1972 to 2021. The results indicated that there is a cointegration among economic growth, FDI, trade openness, urbanization, and energy usage, which was traced through the autoregressive-distributed lag (ARDL). The Zivot-Andrews unit root test reveals that energy usage, economic growth, FDI, urbanization, and trade openness show significant structural breaks in 1993, 1996, 1982, 2008, and 1994, respectively. The ARDL model shows that economic growth has a positive and significant effect on energy usage in the long-run (0.814) and short-run (0.809). Moreover, the results also show that FDI (0.028) and trade openness (0.043) have positive impacts on energy usage in the long-run. However, urbanization shows a negative and significant influence on energy usage in the long-run (−0.965). Then, the research demonstrates a unidirectional causation between energy usage and trade openness, with energy usage significantly causing trade openness. The current study endorses energy consumption policies and investment strategies for a paradigm shifting from a reliance on fossil fuels as the primary energy source to renewable energy sources. These findings have profound implications for sustainable energy usage.