Toward a sustainable future: Examining the interconnectedness among Foreign Direct Investment (FDI), urbanization, trade openness, economic growth, and energy usage in Australia

doi:10.1016/j.regsus.2023.11.003

Abstract

Abstract:

The energy demand in Australia is increasing with the industrialization and rapid economic growth. This study analyzed the relationships among the economic growth, Foreign Direct Investment (FDI), trade openness, urbanization, and energy usage in Australia based on the data from World Development Indicators (WDI) from 1972 to 2021. The results indicates that there is a cointegration among economic growth, FDI, trade openness, urbanization, and energy usage, which was traced through the autoregressive-distributed lag (ARDL). The Zivot-Andrews unit root test reveals that energy usage, economic growth, FDI, urbanization, and trade openness show significant structural breaks in 1993, 1996, 1982, 2008, and 1994, respectively. The ARDL model shows that economic growth has a positive and significant effect on energy usage in the long-run (0.814) and short-run (0.809). Moreover, the results also show that FDI (0.028) and trade openness (0.043) have positive impacts on energy usage in the long-run. However, urbanization shows a negative and significant influence on energy usage in the long-run (-0.965). Then, the research demonstrates a unidirectional causation between energy usage and trade openness, with energy usage significantly causing trade openness. The current study endorses energy consumption policies and investment strategies for a paradigm shifting from a reliance on fossil fuels as the primary energy source to renewable energy sources. These findings have profound implications for sustainable energy usage.

Key words: Renewable energy, Foreign Direct Investment (FDI), Trade openness, Urbanization, Climate change Marshallian Demand Function

Chandra VOUMIK Liton, Hasanur RAHMAN Md., Maznur RAHMAN Md., RIDWAN Mohammad, AKTER Salma, RAIHAN Asif. Toward a sustainable future: Examining the interconnectedness among Foreign Direct Investment (FDI), urbanization, trade openness, economic growth, and energy usage in Australia[J]. Regional Sustainability, 2023, 4(4): 405-415.

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Variable	Description	Measurement unit	Symbol	Logarithmic form	Source
Energy usage	Oil equivalent per capita	kg/people	ENER	LENER	World Bank (2022)
Economic growth	Gross Domestic Product per capita (GDP)	USD/people	GDP	LGDP
Foreign Direct Investment (FDI)	Net inflows of FDI	USD	FDI	LFDI
Urbanization	Urban population	people	URBA	LURBA
Trade openness	Trade as a percentage of GDP	%	TO	LTO

Variable	Mean	Standard deviation	Minimum	Maximum
LENER	8.530	0.103	8.303	8.694
LGDP	10.630	0.258	10.230	10.980
LFDI	22.730	1.560	18.720	24.910
LURBA	16.570	0.199	16.220	16.920
LTO	3.570	0.173	3.209	3.825

Variable	IPS statistic		PP statistic		KPSS statistic		Remark
Variable	I(0)	I(1)	I(0)	I(1)	I(0)	I(1)	Remark
LENER	-0.125	-5.522^***	-1.491	-6.993^***	-1.431	-6.993^***	Stationary at I(1)
LGDP	2.568	-3.531^***	0.758	-7.693^***	0.826	-7.733^***	Stationary at I(1)
LFDI	2.195	-3.380^***	1.834	-6.319^***	1.811	-7.319^***	Stationary at I(1)
LURBA	-5.518^***	-	-4.485^**	-	-4.491^**	-	Stationary at I(0)
LTO	-0.052	-6.512^***	-0.725	-6.919^***	-0.712	-6.921^***	Stationary at I(1)

Variable	Zivot-Andrews statistic	Structural break year	Significance level			Decision
Variable	Zivot-Andrews statistic	Structural break year	1%	5%	10%	Decision
LENER	-2.576^**	1993	-5.340	-4.930	-4.580	Structural break exist
LGDP	-2.232^**	1996	-5.340	-4.930	-4.580
LFDI	-3.088^***	1982	-5.340	-4.930	-4.580
LURBA	-3.781^***	2008	-5.340	-4.930	-4.580
LTO	-2.839^***	1994	-5.340	-4.930	-4.580

Critical bound	Significance level
Critical bound	10%	5%	1%
I(0)	2.639	3.196	4.518
I(1)	3.874	4.589	6.270