Role of Institution in FDI and Energy Consumption Relationship in Developing Economies: A Case of Nigeria
DOI:
https://doi.org/10.22452/IJIE.vol18no2.1Keywords:
Foreign direct investment, Energy consumption, Environmental Kuznets curve, Kernel-based regularised least squares, Dynamic ARDL simulationAbstract
This study examines the moderating effect of institutional quality on the
relationship between FDI and energy consumption in Nigeria from 1996 to 2022 using
the novel dynamic autoregressive distribution lag (dynardl) simulation model and Kernelbased
regularised least squares (KRLS). The results of the dynardl simulation show that
FDI increases energy consumption in the short run, but reduces energy consumption in
the long run. The results also validate the existence of an inverted U-shaped relationship
between FDI and energy consumption. More importantly, it was revealed that the
interactive relationship between FDI and institutional quality was found to reduce energy
consumption within the period under study. This indicates that while the benefits of
FDI are indisputable, they cannot be fully realised without the appropriate institutional
framework. Therefore, the institutional quality of the host country plays a pivotal role
in harnessing the absorptive capacity of FDI to effectively curtail energy consumption,
especially in the context of fossil fuels, and in promoting the adoption of energy-efficient
technologies.
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