Transmission pathways between foreign aid and renewable energy consumption in Vietnam

Abstract

Our paper is the first attempt to analyze the environmental consequences and energy security of foreign aid in Vietnam during the 1987–2019 period. We apply various modern econometric techniques, including the multivariate Wavelet model and an extended time-varying vector autoregression (TVP-VAR). By using the multivariate wavelet model, we find that there are cycles of period 3–4 years in the 1988–1992 sample and 18–25 years in the 1985–2001 and 1989–2009 sample for the nexus between foreign aid growth and nonrenewable, renewable energy consumption. The region (from 1989 to 1992) implies that changes in foreign aid adversely led to changes in renewable energy consumption. In those regions, the phase (1993–2005) suggests the anti-phase relation with renewable consumption leading. The phase (2006–2011) implies that changes in foreign aid adversely led to changes in renewable energy consumption. By using an extended TVP-VAR, we reveal that nearly 61% of error variance within the system stems from idiosyncratic effects. We demonstrate that there are changes in the roles of foreign aid over time. Foreign aid plays a role as a net transmitter of shocks from 1988 to 2003 and net transmitter of shocks from 1988 to 2003 and transforms into a net receiver of shocks from 2004 to 2019. In 1989, foreign aid also transmits the greatest shocks to the use of renewable energy. Furthermore, from 1988 to 1995, nonrenewable energy shocks affect the inflows of foreign aid, which then acts as a shock transmitter of these shock to the economy since 1995.