Does Foreign Aid Reduce Energy and Carbon Intensities in Bangladesh? An Empirical Investigation

Sakib B. Amin, Farhan Khan, Shahtaj Mahmud and Golam Samin Rahman

Foreign aid has been existing since the formation of national states. The rich developed countries or agencies are always helping the developing countries through different types of foreign aids. It not only effects growth but also helps to improve different socio economic aspects of the recipient country. The aim of this paper is to explore the impact of foreign aid on energy consumption intensity and carbon intensity as no studies have been conducted in this context in Bangladesh. We used time series data from 1980 to 2015 for our empirical analysis. Johansens’s cointegration test confirms our variables are cointegrated in the long run. We used Dynamic Ordinary Least Square (DOLS) and Generalized Method of Moments (GMM) to check impact of foreign aid on energy consumption intensity and carbon intensity. According to the results of these estimation approaches, we found that foreign aid reduces energy consumption and carbon intensity in Bangladesh. However, the effect on energy consumption intensity is much lower than the effect on carbon intensity.