An Empirical Analysis of Economic Growth, FDI, Renewable Energy Consumption and Trade Openness on Greenhouse gas emissions in India

Abstract

This study examines the complex relationship between greenhouse gas emissions and four key macroeconomic variables (economic growth, foreign direct investment (FDI), renewable energy consumption, and trade openness) in the Indian context over the period 2000 to 2021. Using the Autoregressive Distributed Lag (ARDL) bounds testing approach, the analysis uncovers a long-run equilibrium relationship among the variables. The analysis revealed a U-shaped link between GDP and emissions, indicating that while emissions tend to fall at lower income levels, they rise again once a certain income threshold is crossed thereby challenging the conventional EKC hypothesis. While FDI was found to have no notable impact on emissions, increased consumption of renewable energy significantly reduced emissions in both the short and long term, emphasizing its environmental value. Conversely, greater trade openness was linked with higher emissions over time, suggesting that increased integration with global markets may come at an environmental cost. These insights point to the importance of pursuing clean energy strategies and sustainable trade practices as India continues to grow economically.