Does outward foreign direct investment and the green transition affect renewable energy penetration among European Union countries?

In this study, we examine the relationship between renewable energy penetration and monetary outflows among European Union countries from 2004 to 2022 within the context of transitioning to green economies. The estimation of the model is based on the characteristics of our data, resulting in estimations using cointegrated regressions. Our conclusions assert that outward foreign direct investment does not contribute to a higher penetration of renewable energy, and we offer two possible explanations for this. Firstly, OFDI involves the relocation of capital, which, due to a decrease in available capital, reduces the demand for inputs necessary for production. Secondly, the hypothesis is that OFDI helps filter energy-intensive investments, thereby improving the productivity of renewable energy based on its production. To avoid incentivizing the relocation of these investments, which could lead to a decrease in productivity, we recommend the implementation of progressive tax rates that take into account the level of dependency and the temporal period of the investments.