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

Liton Chandra VOUMIK, Md. Hasanur RAHMAN, Md. Maznur RAHMAN, Mohammad RIDWAN, Salma AKTER, Asif RAIHAN. 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.

Figures/Tables 9

Table 1

Table 2

Table 3

Table 4

Table 5

Table 6

Table 7

Table 8

Table 9

References 64

[1]	ABS (Australian Bureau of Statistics), 2022. National Accounts. [2022-11-25]. https://www.abs.gov.au/statistics/economy/national-accounts.
[2]	Addai, K., Serener, B., Kirikkaleli, D., 2023. Can environmental sustainability be decoupled from economic growth? Empirical evidence from Eastern Europe using the common correlated effect mean group test. Regional Sustainability. 4(1), 68-80. doi: 10.1016/j.regsus.2023.03.003
[3]	Ajisafe, R., Nassar, M., Fatokun, O., 2006. External debt and foreign private investment in Nigeria: A test for causality. African Economic and Business Review. 4(1), 48-63.
[4]	Akbar, M.W., Yuelan, P., Maqbool, A., et al., 2021. The nexus of sectoral-based CO₂ emissions and fiscal policy instruments in the light of the Belt and Road Initiative. Environ. Sci. Pollut. Res. 28, 32493-32507. doi: 10.1007/s11356-021-13040-3
[5]	Amoako, S., Insaidoo, M., 2021. Symmetric impact of FDI on energy consumption: Evidence from Ghana. Energy. 223, 120005, doi: 10.1016/j.energy.2021.120005.
[6]	Behera, P., Sethi, N., 2022. Nexus between environment regulation, FDI, and green technology innovation in OECD countries. Environ. Sci. Pollut. Res. 29(35), 52940-52953. doi: 10.1007/s11356-022-19458-7
[7]	Behera, P., Haldar, A., Sethi, N., 2023. Achieving carbon neutrality target in the emerging economies: Role of renewable energy and green technology. Gondwana Res. 121, 16-32. doi: 10.1016/j.gr.2023.03.028
[8]	Caetano, R.V., Marques, A.C., Afonso, T.L., et al., 2022. A sectoral analysis of the role of Foreign Direct Investment in pollution and energy transition in OECD countries. J. Environ. Manage. 302, 114018, doi: 10.1016/j.jenvman.2021.114018.
[9]	Churchill, S.A., Ivanovski, K., 2020. Electricity consumption and economic growth across Australian states and territories. Appl. Econ. 52(8), 866-878. doi: 10.1080/00036846.2019.1659932
[10]	Cole, M.A., 2006. Does trade liberalization increase national energy use? Econ. Lett. 92(1), 108-112. doi: 10.1016/j.econlet.2006.01.018
[11]	Dash, D.P., Dash, A.K., Sethi, N., 2022. Designing hydro-energy led economic growth for pollution abatement: Evidence from BRICS. Environ. Sci. Pollut. Res. 29(21), 31252-31269. doi: 10.1007/s11356-021-17890-9
[12]	Department of Foreign and Trade Affairs, Australian Government, 2022. The Benefits of Foreign Investment. [2022-11-26]. https://www.dfat.gov.au/trade/investment/the-benefits-of-foreign-investment.
[13]	Doytch, N., Narayan, S., 2016. Does FDI influence renewable energy consumption? An analysis of sectoral FDI impact on renewable and non-renewable industrial energy consumption. Energy Econ. 54, 291-301. doi: 10.1016/j.eneco.2015.12.010
[14]	Esquivias, M.A., Sugiharti, L., Rohmawati, H., et al., 2022. Nexus between technological innovation, renewable energy, and human capital on the environmental sustainability in emerging Asian economies: a panel quantile regression approach. Energies. 15(7), 2451, doi: 10.3390/en15072451.
[15]	Ghosh, S., Hossain, M.S., Voumik, L.C., et al., 2023. Unveiling the spillover effects of democracy and renewable energy consumption on the environmental quality of BRICS countries: A new insight from dfferent quantile regression approaches. Renew. Energy Focus. 46, 222-235. doi: 10.1016/j.ref.2023.06.004
[16]	Gyimah, J., Yao, X.L., Tachega, M.A., 2022. Renewable energy consumption and economic growth: new evidence from Ghana. Energy. 248, 123559, doi: 10.1016/j.energy.2022.123559.
[17]	Haldar, A., Sethi, N., 2022. Environmental effects of information and communication technology-exploring the roles of renewable energy, innovation, trade, and financial development. Renew. Sust. Energ. Rev. 153, 111754, doi: 10.1016/j.rser.2021.111754.
[18]	Haldar, A., Sethi, N., 2023. The effects of renewable energy, innovation, and governance on climate change and economic growth—investigating the opportunities and challenges for emerging Asia. Asian Economics Letters. 4(2), doi: 10.46557/001c.73683.
[19]	Haldar, A., Sucharita, S., Dash, D.P., et al., 2023. The effects of ICT, electricity consumption, innovation and renewable power generation on economic growth: An income level analysis for the emerging economies. J. Clean. Prod. 384, 135607, doi: 10.1016/j.jclepro.2022.135607.
[20]	Hdom, H.A., Fuinhas, J.A., 2020. Energy production and trade openness: Assessing economic growth, CO₂ emissions and the applicability of the cointegration analysis. Energy Strategy Rev. 30, 100488, doi: 10.1016/j.esr.2020.100488.
[21]	Im, K.S., Pesaran, M.H., Shin, Y., 2003. Testing for unit roots in heterogeneous panels. J. Econom. 115(1), 53-74. doi: 10.1016/S0304-4076(03)00092-7
[22]	Islam, F., Shahbaz, M., Rahman, M.M., 2013. Trade openness, financial development energy use, and economic growth in Australia: Evidence on long run relation with structural breaks. Munich Personal RePEc Archive. 1-36.
[23]	Johnson, E., Nica, E., 2021. Connected vehicle technologies, autonomous driving perception algorithms, and smart sustainable urban mobility behaviors in networked transport systems. Contemp. Read. Law Soc. Justice. 13(2), 37-50. doi: 10.22381/CRLSJ13220213
[24]	Kahouli, B., 2019. Does the static and dynamic relationship between economic growth and energy consumption exist in OECD countries? Energy Rep. 5, 104-116. doi: 10.1016/j.egyr.2018.12.006
[25]	Kar, S.K., Sinha, A.S.K., Bansal, R., et al., 2023. Overview of hydrogen economy in Australia. Wiley Interdisciplinary Reviews: Energy Environ. 12(1), 457, doi: 10.1002/wene.457.
[26]	Kwiatkowski, D., Phillips, P.C., Schmidt, P., et al., 1992. Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? J. Econom. 54(1-3), 159-178. doi: 10.1016/0304-4076(92)90104-Y
[27]	Leal, P.H., Marques, A.C., Fuinhas, J.A., 2018. How economic growth in Australia reacts to CO₂ emissions, fossil fuels, and renewable energy consumption. Int. J. Energy Sect. Manag. 12(4), 696-713. doi: 10.1108/IJESM-01-2018-0020
[28]	Majumder, S.C., Rahman, M.H., Martial, A.A.A., 2022. The effects of foreign direct investment on export processing zones in Bangladesh using the Generalized Method of Moments Approach. Social Sciences & Humanities Open. 6(1), 100277, doi: 10.1016/j.ssaho.2022.100277.
[29]	Majumder, S.C., Rahman, M.H., 2023. Rural-urban migration and its impact on environment and health: Evidence from Cumilla City Corporation, Bangladesh. GeoJournal. 88(3), 3419-3437. doi: 10.1007/s10708-022-10816-z
[30]	Majumder, S.C., Voumik, L.C., Rahman, M.H., et al., 2023. A quantile regression analysis of the impact of electricity production sources on CO₂ emission in South Asian Countries. Strategic Planning for Energy and the Environment. 307-330.
[31]	Mohanty, S., Sethi, N., 2022. The energy consumption-environmental quality nexus in BRICS countries: The role of outward foreign direct investment. Environ. Sci. Pollut. Res. 29(13), 19714-19730. doi: 10.1007/s11356-021-17180-4
[32]	Munir, K., Riaz, N., 2020. Asymmetric impact of energy consumption on environmental degradation: Evidence from Australia, China, and USA. Environ. Sci. Pollut. Res. 27(11), 11749-11759. doi: 10.1007/s11356-020-07777-6
[33]	Nahrin, R., Rahman, M.H., Majumder, S.C., et al., 2023. Economic growth and pollution nexus in Mexico, Colombia, and Venezuela (G-3 Countries): The role of renewable energy in carbon dioxide emissions. Energies. 16(3), 1076, doi: 10.3390/en16031076.
[34]	Nica, E., Konecny, V., Poliak, M., et al., 2020. Big data management of smart sustainable cities: Networked digital technologies and automated algorithmic decision-making processes. Manag. Res. Pract. 12(2), 48-57.
[35]	Nica, E., 2021. Urban big data analytics and sustainable governance networks in integrated smart city planning and management. Geopolitics, History, and International Relations. 13(2), 93-106. doi: 10.22381/GHIR13220217
[36]	Nica, E., Poliak, M., Alpopi, C., et al., 2023. Impact of trade, FDI, and urbanization on female employment system in SAARC: GMM and quantile regression approach. Systems-Basel. 11(3), 137, doi: 10.3390/systems11030137.
[37]	Novak, A., Sedlackova, A.N., Vochozka, M., et al., 2022. Big data-driven governance of smart sustainable intelligent transportation systems: Autonomous driving behaviors, predictive modeling techniques, and sensing and computing technologies. Contemporary Readings in Law and Social Justice. 14(2), 100-117. doi: 10.22381/CRLSJ14220226
[38]	Pan, X., Uddin, M.K., Han, C., et al., 2019. Dynamics of financial development, trade openness, technological innovation, and energy intensity: Evidence from Bangladesh. Energy. 171, 456-464. doi: 10.1016/j.energy.2018.12.200
[39]	Pattak, D.C., Tahrim, F., Salehi, M., et al., 2023. The driving factors of Italy’s CO₂ emissions based on the STIRPAT model: ARDL, FMOLS, DOLS, and CCR approaches. Energies. 16(15), 5845, doi: 10.3390/en16155845.
[40]	Pesaran, M.H., Shin, Y., Smith, R.J., 2001. Bounds testing approaches to the analysis of level relationships. J. Appl. Econom. 16(3), 289-326. doi: 10.1002/jae.v16:3
[41]	Phillips, P.C., Perron, P., 1988. Testing for a unit root in time series regression. Biometrika. 75(2), 335-346. doi: 10.1093/biomet/75.2.335
[42]	Polcyn, J., Voumik, L.C., Ridwan, M., et al., 2023. Evaluating the influences of health expenditure, energy consumption, and environmental pollution on life expectancy in Asia. Int. J. Environ. Res. Public Health. 20, 4000, doi: 10.3390/ijerph20054000.
[43]	Popescu, G.H., 2014. FDI and economic growth in Central and Eastern Europe. Sustainability. 6(11), 8149-8163. doi: 10.3390/su6118149
[44]	Popescu, G.H., Comanescu, M., Dinca, Z., 2016. Economic growth and energy utilization in China. Economics, Management and Financial Markets. 11(2), 94-100.
[45]	Popescu, G.H., Mieila, M., Nica, E., et al., 2018. The emergence of the effects and determinants of the energy paradigm changes on European Union economy. Renew. Sust. Energ. Rev. 81, 768-774. doi: 10.1016/j.rser.2017.08.055
[46]	Popescu, G.H., Andrei, J.V., Nica, E., et al., 2019. Analysis of the impact of investments, energy use, and domestic material consumption in changing the Romanian economic paradigm. Technol. Econ. Dev. Econ. 25(1), 59-81. doi: 10.3846/tede.2019.7454
[47]	Rahman, M.H., Ruma, A., Nahrin, R., et al., 2021. Examine the empirical relationship between energy consumption and industrialization in Bangladesh: Granger causality analysis. International Journal of Energy Economics and Policy. 11(3), 121-129.
[48]	Rahman, M.H., Majumder, S.C., 2022. Empirical analysis of the feasible solution to mitigate the CO₂ emission: Evidence from Next-11 countries. Environ. Sci. Pollut. Res. 29(48), 73191-73209. doi: 10.1007/s11356-022-20908-5
[49]	Rahman, M.H., 2023. Does the current account balance influence foreign direct investment in the Indian economy? Application of quantile regression model. SN Business & Economics. 3(5), 1-18.
[50]	Rahman, M.H., Voumik, L.C., Akter, S., et al., 2023. New insights from selected South Asian countries on the determinants of GHG emissions. Energy Environ. doi: 10.1177/0958305X231189180.
[51]	Rana, M.M.P., 2011. Urbanization and sustainability: Challenges and strategies for sustainable urban development in Bangladesh. Environment, Development and Sustainability. 13, 237-256. doi: 10.1007/s10668-010-9258-4
[52]	Sadorsky, P., 2014. The effect of urbanization on CO₂ emissions in emerging economies. Energy Econ. 41, 147-153. doi: 10.1016/j.eneco.2013.11.007
[53]	Sahoo, M., Sethi, N., 2021. The intermittent effects of renewable energy on ecological footprint: evidence from developing countries. Environ. Sci. Pollut. Res. 28(40), 56401-56417. doi: 10.1007/s11356-021-14600-3
[54]	Shahbaz, M., Nasreen, S., Ling, C.H., et al., 2014. Causality between trade openness and energy consumption: What causes what in high-, middle- and low-income countries. Energy Policy. 70, 126-143. doi: 10.1016/j.enpol.2014.03.029
[55]	Shahiduzzaman, M., Alam, K., 2014. A reassessment of energy and GDP relationship: The case of Australia. Environ. Dev. Sustain. 16, 323-344. doi: 10.1007/s10668-013-9479-4
[56]	Sohag, K., Begum, R.A., Abdullah, S.M.S., et al., 2015. Dynamics of energy use, technological innovation, economic growth, and trade openness in Malaysia. Energy. 90, 1497-1507. doi: 10.1016/j.energy.2015.06.101
[57]	Sultana, T., Hossain, S.M., Voumik, L.C., et al., 2023. Does globalization escalate the carbon emissions? Empirical evidence from selected next-11 countries. Energy Rep. 10, 86-98.
[58]	Topcu, M., Payne, J.E., 2018. Further evidence on the trade-energy consumption nexus in OECD countries. Energy Policy. 117, 160-165. doi: 10.1016/j.enpol.2018.03.007
[59]	Voumik, L.C., Rahman, M., Akter, S., 2022. Investigating the EKC hypothesis with renewable energy, nuclear energy, and R&D for EU: Fresh panel evidence. Heliyon. 8(12), e12447, doi: 10.1016/j.heliyon.2022.e12447.
[60]	Voumik, L.C., Ridwan, M., 2023. Impact of FDI, industrialization, and education on the environment in Argentina: ARDL approach. Heliyon. 9(1), e12872, doi: 10.1016/j.heliyon.2023.e12872.
[61]	Wan, J., Baylis, K., Mulder, P., 2015. Trade-facilitated technology spillovers in energy productivity convergence processes across EU countries. Energy Econ. 48, 253-264. doi: 10.1016/j.eneco.2014.12.014
[62]	Warsame, A.A., 2022. The impact of urbanization on energy demand: empirical evidence from Somalia. Int. J. Energy Econ. Policy. 12(1), 383-389.
[63]	World Bank, 2022. World Development Indicators (WDI). 2022. [2022-11-20]. https://data.worldbank.org/country/AU.
[64]	Zaharia, A., Diaconeasa, M.C., Brad, L., et al., 2019. Factors influencing energy consumption in the context of sustainable development. Sustainability. 11(15), 4147, doi: 10.3390/su11154147.

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