The Effects of FDI on Renewable Energy Consumption

Abstract: Today, the discussion regarding the environmental degradation is more active and pressing than ever. In Paris 2015, world leaders signed Agenda 2030, binding them to actively work to keep the global temperature increase below 2 degrees Celsius. This agreement also targets the need for sustainable energy for all humans. The purpose of this paper is to evaluate whether FDI has an effect on the consumption of renewable energy in middle-income countries, with the theory of technology diffusion and pollution havens as a backdrop. To present this research, yearly data on 56 middle-income countries from 1990-2010 have been collected. We use a f panel data model with fixed effects to conduct our regressions. We find that FDI is negatively correlated with the share of renewable energy, but as the negative effect is not all that large, we carefully suggest that technology diffusion takes time. FDI may decrease the share of renewable energy in the present, but could potentially lead to an increase in the future. However, we conclude that more research in the field of Environmental Economics is needed.