Journal Article

Exploring the Nonlinear Dynamic Relationship Between Foreign Direct Investment, Renewable Energy Consumption, Economic Growth, and Carbon Emissions: A Panel Threshold VAR Analysis Approach

Zhao, Jing

2025

Overview

This study examines the dynamic, nonlinear interactions among foreign direct investment, renewable energy consumption, economic growth, and carbon dioxide emissions in 27 countries from 1971 to 2021 using a panel threshold vector autoregression (PT-VAR) model. Key findings include: (a) FDI contributes to emission reduction only when GDP growth exceeds a certain threshold. (b) Renewable energy consumption’s impact on reducing carbon emissions is significant only in the long term and depends on the level of economic growth. (c) In countries with high FDI, economic growth aids in reducing CO2 emissions both in the short and long term. In contrast, in low FDI countries, economic growth initially leads to environmental degradation, which lessens as the economy matures. (d) An N-shaped relationship exists between FDI and CO2 emissions in countries with higher renewable energy use in the short to medium term. These findings underscore the intricate relationship between these variables and offer policy insights for sustainable development and climate change mitigation. JEL classifications: C33; F21; O44; Q54 Plain Language Summary A detailed study about understanding how foreign investments, green energy use, economic growth, and carbon pollution interact Why was the study done? This research aimed to explore the dynamics among investments, the adoption of sustainable energy sources, economic development and carbon dioxide emissions. What did the researchers do? I investigated how these factors interplay and whether they have negative impacts on one another in the efforts to combat climate change and foster sustainable progress. I examined data from 27 countries spanning five decades (1971 to 2021) using a approach of the panel threshold vector autoregression (PT-VAR) model. What did the researchers find? Foreign direct investment (FDI) contributes to lowering carbon emissions once a countrys economy surpasses a certain threshold. The advantages of transitioning to renewable energy for reducing carbon footprints are more evident in growing economies. The relationship between foreign investment and carbon emissions forms an N-shape in the short to medium term in countries that use more renewable energy. The carbon emissions have a varying impact depending on the investment and energy consumption levels. What do the findings mean? These findings highlight the complex ways in which economic factors and environmental health interact. They suggest that careful planning and policy-making, considering the level of foreign investment and the state of economic growth, can lead to better environmental outcomes. Essentially, this research provides valuable insights for countries aiming to grow their economies without harming the planet, indicating that it’s possible to achieve economic development and reduce carbon emissions simultaneously with the right strategies.

• Publisher: SAGE Publications,SAGE PUBLICATIONS, INC,SAGE Publishing
• Subject: Alternative energy / Carbon dioxide / Change agents / Climate / Climate change / Development policy / Economic development / Economic factors / Economic growth / Economic Progress / Emissions / Energy / Energy consumption / Energy development / Environmental degradation / Environmental health / Environmental policy / Foreign aid / Foreign investment / Green energy / Investments / Language shift / Long term / Mitigation / Policy making / Pollution / Renewable energy / Sustainability / Sustainable development / Thresholds