Do Trade Openness, Structure of the Economy and FDI Affect Energy Intensity in India? A Case for Including Energy Intensity as a Policy Parameter

In: The Indian economic journal, Band 65, Heft 1-4, S. 172-192

Abstract

This article examines the existence of a long-run relationship between energy intensity, trade openness, structure of the economy and FDI inflows in India from 1973 to 2013 using auto regressive distributive lag (ARDL) bounds test methodology. The results indicate that (a) there is a long-run cointegration among the analysed variables and (b) an increase in trade openness, share of services in gross domestic product (GDP) and share of FDI in domestic investments results in lowering energy intensity. The study also finds that the magnitude of impact of the share of industry in increasing energy intensity in India outweighs the combined energy intensity lowering impact of trade openness, share of services and share of FDI. The study validates tenets of the theory of heterogeneity of firms in international trade and pitches for including 'energy intensity' as a policy parameter in promoting 'energy-frugal' technologies via Make-in-India initiative, trade and FDI policies.