Interaction between FDI and energy use on emissions : ASEAN panel evidence

This study looks at carbon emissions among the Association of Southeast Asian Nations (ASEAN) countries during the period 2000-2019. Through panel data using both pooled ordinary least squares (OLS) and panel least square regressions, the Environmental Kuznets Curve (EKC) hypothesis is tested as well as a model which includes GDP per capita, foreign direct investment (FDI), energy use, trade and an interaction term between FDI and energy use. The interaction term is built from and being expanded from the existing FDI-energy nexus. A cointegration test is also conducted to find out whether there exists a long-run relationship among the variables. The findings indicate that as a whole region, ASEAN observes the EKC hypothesis but different results occur when categories of oil versus non-oil exporting and Cambodia, Laos, Myanmar, Vietnam (CLMV) versus non-CLMV countries are defined. In ASEAN overall, the pooled and panel data regressions suggest GDP per capita, FDI and energy use would increase emissions. In contrast, trade would reduce carbon emissions. The interaction term of FDI and energy was found to be a mediating variable and it was statistically significant. Policy implications are discussed.