Renewable energy and foreign direct investment: does the governance matter for CO2 emissions? Application of CS-ARDL

Climate change is a global problem, and the policy-makers are trying their best to mitigate the impacts of drastic climate variability. Considering the mandate of Kyoto Protocol, this work investigates the individual and interactive impacts of renewable energy, economic growth, government effectiveness, and foreign investment towards carbon emissions in selected South Asian countries of India, Pakistan, Sri Lanka, and Bangladesh. The annual data of 1996–2019 has been analyzed by adopting advance methods. After confirming the cross-sectional dependence in the panel data, Westerlund cointegration test confirms the strong association of 1% level among the variables. Cross-sectional autoregressive distributed lag approach is employed to present long- and short-run coefficient values, which shows all data is having cross-sectional dependence at 1% level. Renewable energy and its interactive terms with government effectiveness and FDI are environmental friendly. A 1% increase in renewable energy is lowering CO2 emissions by 13.95%. Moreover, 1% increase in governance is reducing carbon emissions by 7.68%. This shows that these governments should integrate the FDI with renewable energy in the context of strict environmental policies. The attention should be on to generate more renewable energy. This can be done by importing latest technologies and to develop the domestic research and development expenditures.