Vol. 1 No. 2 (2024): December

This study evaluates the role of foreign direct investment (FDI) in promoting clean energy infrastructure development in developing countries. The objective is to examine both short-run and long-run effects of FDI on renewable energy capacity while accounting for macroeconomic and institutional factors. The analysis employs panel data from six developing economies—Indonesia, Vietnam, India, Bangladesh, Kenya, and Nigeria—over the period 2010–2023. A Panel Autoregressive Distributed Lag (Panel ARDL) approach combined with an Error Correction Model (ECM) is applied to capture dynamic adjustments and long-run equilibrium relationships. The empirical results reveal that FDI has a positive and statistically significant impact on renewable energy development, with stronger effects observed in the long run. Clean energy incentive policies and regulatory quality enhance the effectiveness of FDI, whereas higher interest rates hinder green energy investment by increasing capital costs. Impulse response analysis further confirms that FDI shocks stimulate renewable energy capacity growth in the short term before converging to a stable path. Overall, the findings highlight the critical importance of aligning FDI inflows with supportive policy frameworks and sound regulatory institutions to accelerate sustainable energy transitions in developing countries.