Role of institution in FDI and energy consumption relationship in developing economies: a case of Nigeria

This study examines the moderating effect of institutional quality on the relationship between FDI and energy consumption in Nigeria from 1996 to 2022 using the novel dynamic autoregressive distribution lag (dynardl) simulation model and Kernel-based regularised least squares (KRLS). The results of the dynardl simulation show that FDI increases energy consumption in the short run, but reduces energy consumption in the long run. The results also validate the existence of an inverted U-shaped relationship between FDI and energy consumption. More importantly, it was revealed that the interactive relationship between FDI and institutional quality was found to reduce energy consumption within the period under study. This indicates that while the benefits of FDI are indisputable, they cannot be fully realised without the appropriate institutional framework. Therefore, the institutional quality of the host country plays a pivotal role in 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-efficient technologies.

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