Mediating macroeconomic performance in green energy policies and foreign direct investment nexus: Do transmission mechanism heterogeneities on clean energy poverty and carbon neutrality matter?

Abstract

This study explores the complex interplay between green energy policies (GEP) and foreign direct investment (FDI), comparing their impacts on achieving carbon neutrality and addressing clean energy poverty (CEP). The study employs a Driscoll–Kraay fixed-effects model, panel quantile regression, two-stage least squares, and panel structural vector autoregression across 77 high-income nations, utilizing data from 1995 to 2022. The results indicate that GEP positively influences FDI, with renewable energy promotion having a more significant impact compared to energy efficiency improvements. Additionally, the novel macroeconomic performance (MP) index mediates the relationship between GEP and FDI inflows, with stronger positive effects observed in countries with higher levels of FDI inflows. The study revealed heterogeneous transmissions of GEP, MP, and FDI on carbon neutrality and CEP. Specifically, FDI tends to undermine carbon neutrality policies, while MP plays a more significant role in reducing CEP. The findings suggest that countries should integrate more green energy incentives. They should enforce the mandatory adoption of clean technologies by foreign investors. They should also strengthen macroeconomic fundamentals and enhance green digital economy innovations based on FDI. These include encouraging FDIs that promote artificial intelligence and Internet of Things innovations. It can boost economy by optimizing resource use and enhancing productivity. At the same time, they control carbon emissions through real-time monitoring, predictive analytics, and efficient energy management.