DOES IMPORT DIVERSIFICATION ENHANCE ENERGY EFFICIENCY? EMPIRICAL EVIDENCE FROM SOUTH ASIA

Abstract

This study investigates whether import diversification enhances energy efficiency by analyzing its impact on CO₂ intensity across South Asian economies over the period 2004–2022. Using a comprehensive panel dataset and employing four econometric methodologies—Fixed Effects Model (FEM), Random Effects Model (REM), System Generalized Method of Moments (Sys-GMM), and Kiviet-LSDV correction (KLS)—the analysis explores the dynamic effects of import diversification, foreign direct investment (FDI), economic growth, industrial structure, and policy interventions on emissions trajectories. The findings reveal notable methodological variation: FEM and REM suggest that both FDI and GDP growth exacerbate CO₂ intensity, lending support to the pollution haven hypothesis and early-stage Environmental Kuznets Curve (EKC) dynamics. Conversely, the Sys-GMM model captures long-run efficiency gains from FDI, while KLS indicates more muted growth-related emissions. Importantly, industrial transformation consistently contributes to emissions reductions across all models (ranging from –0.47% to –1.61%), highlighting the role of structural change in energy efficiency. However, the impact of import diversification is highly model-dependent—suggesting that its effects are contingent on the carbon profile of imported goods and the absorptive capacity of domestic industries. The significant lagged dependent variable in the Sys-GMM model (coefficient = 3.56) confirms the persistence and path dependence of emissions patterns, while KLS results reveal different narratives for conventional policy. Overall, the results underscore that achieving decarburization in South Asia necessitates a dual strategy of deep structural transformation and nuanced, country-specific policy design that aligns trade composition with energy efficiency and sustainable development goals.