Role of Renewable Energy, FDI, and Trade Openness in Driving Economic Growth: Panel ARDL Evidence from South Asian Countries

Abstract

This study examines the impact of renewable energy (RN), foreign direct investment (FDI), and trade openness (TO) on economic growth in South Asian countries using panel data from 1999 to 2023. Panel unit root tests confirmed the stationarity of the data, while the autoregressive distributed lag (ARDL) approach was applied to assess both short- and long-run dynamics. The robustness of the long-run results was verified through pedroni and fisher estimations. Findings reveal that FDI, trade openness and urban population significantly promote short-run economic growth. Conversely FDI and urban population, renewable energy and trade openness negatively influence long-term growth, possibly due to inefficient capital allocation and profit repatriation. Short-run results indicate positive effects of GDP per capita and FDI, whereas renewable energy exerts a modest negative effect, likely reflecting initial investment costs or policy challenges. The significant and negative error correction term confirms adjustment toward long-run equilibrium. These findings offer important insights for policymakers, suggesting that South Asian countries should prioritize trade liberalization, optimize FDI utilization, and carefully manage renewable energy transitions to achieve sustainable economic growth.