Effects of FDI and Financial Development on Renewable Energy Consumption in Brazil, Chile, Colombia, and Mexico

Abstract: This paper aims to explore the effects of foreign direct investment (FDI) and financial development on renewable energy consumption in the top four FDI recipient countries in Latin America, namely, Brazil, Chile, Colombia, and Mexico from 1990 to 2020. To investigate the symmetric and asymmetric effects of FDI and financial development, both the autoregressive distributed lag (ARDL) model and the nonlinear ARDL (NARDL) approach are employed. The main finding reveals the important role of financial development in promoting renewable energy consumption. In Brazil, increases in FDI negatively affect renewable energy consumption. The asymmetric effect of FDI is significant in both Chile and Colombia, showing that decreases in FDI benefit clean energy consumption. GDP does not show any effect on renewable energy consumption. In Chile and Colombia, trade openness and renewable energy consumption have a negative correlation while R&D positively impacts renewable energy consumption and the consumption of renewable energy is sensitive to oil prices. The comparative study sheds more light on diverse implications that are discussed in the end. Keywords: Nonlinear ARDL, Renewable Energy Consumption, FDI Inflows, Financial Development, Latin America JEL Classification Number: F31, F4