Exploring the Nonlinear Dynamic Relationship Between Foreign Direct Investment, Renewable Energy Consumption, Economic Growth, and Carbon Emissions: A Panel Threshold VAR Analysis Approach

This study examines the dynamic, nonlinear interactions among foreign direct investment, renewable energy consumption, economic growth, and carbon dioxide emissions in 27 countries from 1971 to 2021 using a panel threshold vector autoregression (PT-VAR) model. Key findings include: (a) FDI contributes to emission reduction only when GDP growth exceeds a certain threshold. (b) Renewable energy consumption's impact on reducing carbon emissions is significant only in the long term and depends on the level of economic growth. (c) In countries with high FDI, economic growth aids in reducing CO2 emissions both in the short and long term. In contrast, in low FDI countries, economic growth initially leads to environmental degradation, which lessens as the economy matures. (d) An N-shaped relationship exists between FDI and CO2 emissions in countries with higher renewable energy use in the short to medium term. These findings underscore the intricate relationship between these variables and offer policy insights for sustainable development and climate change mitigation.JEL classifications: C33; F21; O44; Q54