Energy Savings via FDI? Empirical Evidence from Developing Countries

In this paper we examine the influence of foreign direct investment (FDI) inflows on energy intensities of developing countries empirically. We first replicate a simple ordinary least squares (OLS) estimation, as it is found in the literature, that suggests energy-intensity reductions from FDI inflows. However, the OLS estimation turns out to be spurious and only a starting point for further research. In our regressions we use macro-level panel data on 60 developing countries for the period 1975–2004, including other potential determinants of energy intensities, and carry out robustness checks with more specific data. The results do not confirm the hypothesis that aggregate FDI inflows reduce energy intensity of developing countries. Rather, foreign development aid seems to be related to energy efficiency gains.