The effect of foreign direct investment on renewable energy consumption subject to the moderating effect of environmental regulation: Evidence from the BRICS countries

• Published in: Renewable energy Vol. 201; pp. 135 - 149
• Main Authors: Tan, Yan, Uprasen, Utai
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.12.2022
• Subjects: BRICS; data collection; environmental impact; environmental law; Environmental regulation; Foreign direct investment; Moderating effect; Panel threshold model; Renewable energy consumption; renewable energy sources; Foreign direct investment; Panel threshold model; BRICS; Environmental regulation; Moderating effect; Renewable energy consumption
• ISSN: 0960-1481; 1879-0682
• DOI: 10.1016/j.renene.2022.11.066

The environmental impact of foreign direct investment (FDI) is inconclusive, and FDI's different effects are generally explained through various factors. Meanwhile, this paper explores the effect of FDI on renewable energy consumption. Environmental regulation is considered as a moderating variable and a threshold variable simultaneously to capture the nonlinear association between FDI and renewable energy consumption. The panel threshold method was employed for empirical estimations using the dataset of the BRICS countries from 1990 to 2015. In addition, the generalized method of moments (GMM) models—both system GMM and difference GMM models—were applied to verify the robustness of this work. When formal environmental regulation was used as a moderating variable, the empirical results indicate that FDI reduces renewable energy consumption when the degree of regulatory stringency is lower than a threshold level. In addition, it turns to foster renewable energy consumption once the stringency is higher than the threshold. A similar finding was obtained when an informal environmental regulation was considered. Furthermore, the findings suggest that stricter environmental regulation can substantially promote renewable energy consumption emanating from FDI.