Renewable Energy, Foreign Direct Investment and Sustainable Development: An Empirical Evidence

Renewable energy is replenished on a human timescale. The concern for the use of renewable energy is growing across the globe due to depleting non-renewable sources and various environmental issues. We construct a model of sustainable development to demonstrate the causality and co-integration between Foreign Direct Investment (FDI) inflows and renewable energy consumption. We consider data of select 43 countries for the period from 2005 to 2017 and apply panel data analysis. The results reveal a unidirectional causality from renewable energy consumption to FDI inflows and the presence of a long-run relationship. Consequently, the constructed model will assist the government, non-government organizations, and companies in evaluating the significance of renewable energy and FDI inflows in sustainable development.


INTRODUCTION
"Access to clean, affordable, and reliable energy are necessities in achieving sustainable development in the modern world" . Considering the growing concerns over the degradation of climatic conditions, this becomes even more necessary. An important option for greenhouse gas reduction is renewable energy (Bloyd and Bloyd, 2001). A country prioritizing renewable energy sources reflects its vision towards sustainable development goals. Sustainable development has taken worldwide attention (Kurian, 2012). Government support is necessary for promoting renewable energy resources (Gallagher, 2013). The factors which could influence a Government's decision to adopt favorable policies for renewable energy include cultural factors and attitudes, economic motives, political system, and a low endowment for non-renewable energy sources and high endowment for renewable sources. Such countries giving significant importance to sustainable development will attract foreign investments.
The main source of flows to developing countries is a foreign direct investment (FDI) and as compared to other capital flows, FDI does not show pro-cyclical behavior and it is less volatile (Ozturk, 2007). The FDIs once established in the host country should also promote sustainable development utilizing renewable energy resources. The economic policy reforms should channelize foreign capital inflows to an environmentally healthy direction ( Khan and Ozturk, 2019). The control over environmental pollution may attract FDI inflows to achieve sustainable development in the long-run (Phuong and Tuyen, 2018).
When a country prioritizes renewable energy resources, whether it attracts FDI inflows or when the FDIs establishes in the host country, it promotes renewable energy consumption remains to be a debatable question. We will address this issue and examine the causal variations and co-integration between FDI inflows and renewable energy consumption. We also construct a model of sustainable development demonstrating the influence of renewable energy and FDI inflows.
Further, in Section 2 we provide a review of literature; Section 3 illustrates the research methodology; Section 4 focusses on data analysis and results; and finally, Section 5 provides conclusions.

LITERATURE REVIEW
In this section, we present theoretical insights about past literature relating to FDI inflows and renewable energy consumption. We see Leitão (2015) examined the relationship between FDI and Energy Consumption for the period 1990-2011 using Panel Data Analysis. The study found a positive impact of political globalization and per capita income with energy consumption. The cultural, social, and political components of globalization were found to promote Portuguese FDI. The study also considered the exchange rate and trade openness as control variables that were positively correlated with FDI. In a similar study but using a contrasting methodology, Abidin et al. (2015) examined the linkages between FDI, energy consumption, financial development and trade for Indonesia, Philippines, Malaysia, Thailand, and Singapore using Johansen cointegration test, autoregressive distributed lag (ARDL) Model and Granger causality test. The study evidenced a long-run relationship among FDI inflows, financial development, trade, and energy consumption which was also confirmed by the ARDL model. The Granger causality test revealed unidirectional causality from FDI inflows to energy consumption, energy consumption to financial development, and energy consumption to trade. Also, bidirectional causality was noticed between trade and energy consumption, energy consumption and FDI inflows, trade and FDI inflows, energy consumption and financial development, and between trade and financial development. Sanchez-Loor and Zambrano-Monserrate (2015) examined the relationship between gross domestic product, FDI, human development index, and remittances with the electricity consumption for Ecuador, Mexico and Colombia and found the evidence of electricity consumption causing FDI in the short run. In a similar study conducted concerning Vietnam, Nguyen and Wongsurawat (2017) evidenced the cointegration between energy consumption and FDI. The study also witnessed bi-directional causality between energy consumption and exports. In another study related to Vietnam, Long et al. (2018) used the ARDL approach and Toda-Yamamoto approach and revealed the evidence of the positive impact of energy consumption and FDI on economic growth in short-run as well as in long-run. Warsono et al. (2020) evidenced the direct effect of FDI to energy use. However, a significant negative relationship between energy consumption and FDI inflows were found by Olaoye et al. (2020) for Nigeria. Keho (2016) investigated whether FDI and trade lead to lower energy intensity in six sub-Saharan countries. The study applied the bounds testing approach to Granger causality and co-integration and revealed the evidence of the energyreducing effect of FDI in Nigeria and Benin. The study also showed that in the short-run, the energy intensity is caused by FDI. The efficient energy management standpoint with a strategic concentration on demand-side energy savings and renewable energy resource potential in Nigeria was reviewed by . Also, the study reviewed the energy situation in Nigeria wit the consumption pattern of fossil fuel resources and examined renewable energy potentials and suggested effective strategies. Mahmood and Alkhateeb (2018) evaluated the contributing factors of FDI inflows in Saudi Arabia and found the evidence of oil price and financial market development positively affecting FDI inflows. Using ARDL bounds testing cointegration approach Roespinoedji et al. (2019) found financial development and FDI to be real drivers of renewable electricity consumption in Malaysia. Doytch and Narayan (2016) examined the relationship between energy demand and FDI and investigated the impact of FDI inflows on renewable and non-renewable energy sources for 74 countries. The study utilized Blundell-Bond dynamic panel estimator to control for endogeneity. The results indicated energy consumption augmenting effects concerning renewable energy and energy consumption reducing effect concerning nonrenewable energy sources. Amri (2016) revealed bidirectional linkages between renewable energy consumption and FDI inflows in developed countries. Kiliçarslan (2019) examined the relationship between renewable energy production and FDI in Russia, Brazil, India, China, South Africa, and Turkey using panel ARDL test and Pedroni co-integration test. The results indicated a long-run relationship between FDI and renewable energy production. The literature reveals significant work more inclined towards the examination of FDI inflows and non-renewable energy sources. The present study constructs a sustainable development model by examining the causality between renewable energy and FDI inflows and investigating the long-run relationship.

RESEARCH METHODOLOGY
The present study aims to construct a model of sustainable development. For this purpose, we examine the causal relationship between renewable energy and inflow of FDI and investigate the long-run relationship between the said variables. The study applied Panel Data analysis considering the data in annual frequency of Renewable Energy and FDI Inflows for the period 2005 to 2017 of 43 countries namely; Argentina, Australia, Austria, Belgium, Brazil, Canada, Switzerland, Chile, China, Czech Republic, Germany, Denmark, Spain, Estonia, Finland, France, Great Britain, Greece, Hungary, Indonesia, India, Ireland, Iceland, Israel, Italy, Japan, South Korea, Luxembourg, Latvia, Mexico, Netherland, Norway, New Zealand, Poland, Portugal, Russia, Saudi Arabia, Slovakia, Slovenia, Sweden, Turkey, United States, and South Africa. The study utilizes Summary Statistics to understand the nature of the data. The Summary Statistics include Mean which is a measure of performance, Standard Deviation which signifies the variations, Measures of Normality such as Skewness to know the symmetry of the data, and Kurtosis to examine the flatness of data. If the data is found to be nonnormally distributed, the study will use the logarithmic for the data for further analysis purposes. The unidirectional causality from renewable energy to FDI inflows, unidirectional causality from FDI inflows to renewable energy, and bidirectional causality between renewable energy and FDI inflows are examined using Granger Causality Test. The study adopts the methodology of Bhattacharya et al. (2016) for this purpose. The Granger causality test equation is given as follows: Where LFDI refers to the Log of FDI inflows and LRE represents the Log of renewable energy. The study examines the long-run relationship between FDI inflows and renewable energy consumption Pedroni residual co-integration test using the methodology provided by Pedroni (2001). The equations developed as per the cointegrated system d for panel suggested by Pedroni (2001) is as follows.
Where LFDI refers to the Log of FDI inflows and LRE represents the Log of renewable energy. The co-integration test requires the data to be non-stationary at the level and stationary at first difference. The study will utilise the Levin, Lin & Chu t test, ADF -Fisher Chi-square test, and PP -Fisher Chi-square test to examine the stationarity of the data. The required data relating to FDI inflows and renewable energy consumption has been extracted from the official website of Organisation for Economic Co-operation and Development (OECD) and the analysis is performed using econometric software E-views.

Nature of Data
The results of summary statistics are presented in The study observed 64.46% of the FDI inflows data to be positively skewed and 39.54% of FDI inflows data to be negatively skewed.
In the case of renewable energy, 51% of the data was noticed to be positively skewed. In the case of FDI inflows, 39.53% of the data was found to be Leptokurtic, 4.65% of the data to be Mesokurtic and 55.81% of the data to be Platykurtic. In the case of renewable energy, the study noticed 40% of the data to be Platykurtic and 6.98% of the data to be Leptokurtic. The more evidence of positive or negative skewness and the data being Leptokurtic or Platykurtic shows the non-normal nature of the distribution of the data. Thus, the data was converted to logarithmic form for further analysis purposes. The causality from renewable energy consumption to FDI inflows was also evidenced by Amri (2016). This shows that the FDI Inflows does not cause renewable energy, but renewable energy does cause FDI Inflows. This is justified as the countries which prioritize the use of renewable energy resources, attract the FDI inflows resulting in sustainable development.  long term in nature. When a business establishing itself in another country, it cannot escape the going concern principle of accounting. A business established contributes to the nation in the long run.

Co-integration between FDI Inflows and Renewable Energy
The evidence of the long-run relationship of FDI inflows and the  Figure 1 depicts the constructed model of FDI Inflows, Renewable Energy, and Sustainable Development. We construct this model considering the results of causality and co-integration. The model illustrates the unidirectional causality from renewable energy consumption and FDI inflows. Also, the model demonstrates the co-integration between FDI inflows and renewable energy consumption. A country prioritizing renewable energy consumption may attract FDI inflows. The growing awareness of environmental pollution and degrading climatic conditions due to non-renewable energy sources, pools the companies towards the utilization of renewable energy sources. Although these FDI inflows may not benefit the host country in the short-run, it surely does help in meeting sustainable development goals in the long-run.

CONCLUSION
The concern for the use of renewable energy is growing across the globe due to depleting non-renewable sources and various environmental issues. The present study constructed a model of sustainable development by examining the causal relationship between renewable energy and FII inflows and investigated the long-run relationship between the said variables. The study considered the data in annual frequency for the period 2005-2017 of 43 countries and applied panel data analysis. The Granger causality test results revealed unidirectional causality from renewable energy to FDI inflows. This is justified as the countries which prioritize the use of renewable energy resources, attract the FDI inflows resulting in sustainable development. The causality from renewable energy consumption to FDI inflows was also evidenced by Amri (2016).
The Pedroni residual co-integration test results indicated the presence of a long-run relationship between FDI inflows and renewable energy consumption. The results are consistent with Kiliçarslan (2019). The results are justified as the FDI inflows in any country are long term in nature and when a business establishing itself in another country, it cannot escape the going concern principle of accounting. A business established contributes to the nation in the long run. The evidence of the long-run relationship of FDI inflows and the renewable energy consumption is positive for the nations to meet their sustainable development goals in the long run. The study faces the limitation that it considers only 43 countries due to the unavailability of data. The study can be extended by exclusively focussing a particular region to examine the role of FDI inflows and renewable energy consumption in the sustainable development of the region. Consequently, the constructed model will assist the government, non-government organizations, and companies in evaluating the significance of renewable energy and FDI inflows in sustainable development. The results will also assist policy makers while framing and modifying policies relating to sustainable development.