Role of Institution in FDI and Energy Consumption Relationship in Developing Economies: A Case of Nigeria

Abstract

This study examines the moderating effect of institutional quality on therelationship between FDI and energy consumption in Nigeria from 1996 to 2022 usingthe novel dynamic autoregressive distribution lag (dynardl) simulation model and Kernelbasedregularised least squares (KRLS). The results of the dynardl simulation show thatFDI increases energy consumption in the short run, but reduces energy consumption inthe long run. The results also validate the existence of an inverted U-shaped relationshipbetween FDI and energy consumption. More importantly, it was revealed that theinteractive relationship between FDI and institutional quality was found to reduce energyconsumption within the period under study. This indicates that while the benefits ofFDI are indisputable, they cannot be fully realised without the appropriate institutionalframework. Therefore, the institutional quality of the host country plays a pivotal rolein harnessing the absorptive capacity of FDI to effectively curtail energy consumption,especially in the context of fossil fuels, and in promoting the adoption of energy-efficienttechnologies