Asymmetric effects of renewable energy, trade, and FDI on environmental sustainability in Bangladesh: Fourier ARDL/NARDL evidence from Bangladesh

Abstract

The study assesses how renewable energy consumption (REC), trade openness (TO), and foreign direct investment (FDI) influence environmental sustainability in Bangladesh, using the load capacity factor (LCF) and its inverse (ILCF). It tests the environmental Kuznets curve (EKC), quantifies symmetry and asymmetry, and maps causality over 1990–2022, utilizing annual data from the World Bank, UNCTAD, and IRENA. The analysis employs unit root and cointegration tests, including ADF/Fourier ADF, Perron–Vogelsang, Bayer–Hanck, and Maki. Long-run and short-run estimations are conducted via Fourier ARDL and Fourier NARDL, while causality is examined through Toda–Yamamoto and Fourier (TY) Shock transmission via the TVP-SVAR. Quantile-on-quantile analysis explores state dependence. Results indicate that REC increases LCF and decreases ILCF in the long run, with positive REC shifts yielding larger gains than negative shifts. FDI reduces LCF and increases ILCF, effects that are more significant during inflow surges. TO decreases LCF, and contractions in TO cause larger losses than expansions. The EKC holds with LCF (Y < 0, Y² > 0) and reverses with ILCF. Causality flows from LCF to REC and FDI, and vice versa. The TVP-SVAR shows the increasing roles of REC and TO in LCF variance over time. Quantile-on-quantile estimates reveal larger REC effects in high-REC/high-LCF states and mid-TO quantiles, while FDI effects remain shallow. Error correction terms confirm a stable adjustment to the long-run equilibrium. These econometric insights are relevant for public policy, providing evidence-based guidance for designing adaptive regulatory and investment strategies that balance growth with environmental sustainability.