Unveiling how renewable energy, carbon emissions, infrastructure and macroeconomic factors interact with FDI inflows in India: the ARDL and FMOLS methods

Purpose The purpose of this study is to unveil the dynamic relationship between renewable energy generation (REG), carbon emissions, infrastructure concerning electric consumption, internet users and highway networks, macroeconomic factors and foreign direct investment (FDI) inflows in India from 1990 to 2023. Design/methodology/approach Ensuring the outcomes of the autoregressive distributed lag (ARDL) bound test of overlong co-integration, fully modified ordinary least squares (FMOLS) attested to the relationship among the variables followed by the augmented Dickey–Fuller test for unit roots. The error correction method (ECM) under the ARDL framework captures the short-run dynamics while a causal link has been established through the Vector Error Correction Granger causality test. Findings Contrary to the FMOLS findings, the ARDL bound test supported the hypothesis that infrastructure, trade and REG have a positive long-term impact on FDI, but domestic investment, market size and instability have a negative one. ECM regression shows that while market size promotes FDI, emissions deter it in the short term. The Granger causality test confirmed that market size, FDI and REG drive domestic investment, while trade leads to instability and emissions. In addition, the analysis verified that trade and FDI, infrastructure and instability and FDI and instability are all causes of one another. Moreover, emissions and infrastructure are the main causes of instability. Practical implications Policymakers must prioritize renewable energy, robust infrastructure and stability in their efforts to address emissions and instability. Policies that effectively integrate energy, environmental considerations and economic growth are crucial for attracting and sustaining higher FDI inflows in India. Originality/value This study expands novel insights regarding the significance of renewable energy, emissions, infrastructure and macroeconomic factors for FDI inflows in Indian phenomena. Although previous research has mostly focused on how economic factors encourage FDI inflows, this study is an infrequent attempt to determine whether REG, emissions and infrastructure that represent individual internet users, per capita electricity usage and the length of the national highways have any interplaying relationship on inbound FDI, thereby increasing environmental quality.