How do South-South and North-South FDI affect energy intensity in developing countries?

Herzer, Dierk and Schmelmer, Niklas (2023): How do South-South and North-South FDI affect energy intensity in developing countries?

Abstract

This study is the first to examine the impact of both FDI from developed to developing countries (North-South FDI) and FDI from developing to other developing countries (South-South FDI) on energy intensity in developing countries. It is also the first in the FDI-energy intensity literature to carefully control for the endogeneity of FDI using several IV techniques, as well as the first in this literature to use a panel Granger causality approach. Applying these methods to an unbalanced panel of up to 57 economies over the period 2009 to 2019, we find that South-South FDI contributes to reductions in energy intensity in developing countries. This finding holds even when we use panel cointegration methods. In contrast, we find across all our estimation methods no evidence that North-South FDI reduces energy intensity in developing countries. The obvious policy implication of these findings is that policy makers in developing countries should focus on attracting South-South FDI, rather than on attracting North-South FDI.

• Item Type: MPRA Paper
• Language: English
• Keywords: Energy intensity; developing countries; South-South FDI; North-South FDI
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy

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