Renewable Energy Consumption and Foreign Direct Investment: Reports from Bangladesh

Lamia Lazmi Khandker, Sakib B. Amin, and Farhan Khan

Foreign direct Investment (FDI) is a source of investment which allows any business or sector to grow. It works as a catalyst in developing countries for enhancing total output level. Beside this, FDI also promotes energy efficiency and clean energy. To the best of our knowledge no studies have been conducted to explore the relationship between FDI and renewable energy consumption in the context of Bangladesh. Therefore, the aim of this paper is to reveal the relationship between FDI and renewable energy consumption in Bangladesh with the help of time series data spanning from 1980 to 2015. Johansen’s cointegration test confirms that variables are cointegrated in the long run and Granger causality test reveals that there is a bidirectional causality between our variables of interest. Through Vector Error Correction Model (VECM), we found no causality between the variables in the short run. We employed CUSUM test to check the stability of our variables and result indicates that our variables are stable. Policies regarding attracting more FDI should be considered to increase the investment in Renewable energy sector.