FDI's impact on renewable energy in transitional markets: A panel threshold regression analysis

Abstract

The study investigated the influence of foreign direct investment (FDI) on renewable energy usage in transitional markets. Specifically, the study explored the minimum threshold level above which FDI begins to significantly enhance the use of renewable energy in transitional markets. This study used a dynamic panel threshold regression approach, with panel data spanning from 2004 to 2019. FDI equal to or exceeding a threshold of 44.13% of GDP (gross domestic product) had a significant enhancing influence on the usage of renewable energy (Model 1). Model 2 indicates that FDI exceeding or equal to a threshold value of 51.63% of GDP enhanced renewable energy consumption significantly. The results agree that higher levels of FDI, equal to or higher than the threshold levels, promote the use of renewable energy. The study indicates that foreign direct investment is a critical component in improving renewable energy consumption. Transitional markets need to develop and implement FDI inflow and retention enhancement policies to improve renewable energy usage. Policies aimed at encouraging financial development, total revenue, and human capital development should also be implemented by transitional markets to spur renewable energy consumption.