Nonlinearity in energy-employment nexus: the role of FDI, trade and growth in ASEAN-5

Past studies examining the linear association between energy consumption and employment have generally ignored the role of FDI, trade and economic growth (GDPPC) in accounting for the nexus. These macroeconomic factors are closely intertwined with energy and employment, with empirical evidence being observed in ASEAN-5 confirming the EKC hypothesis, pollution-haven hypothesis, pollution halo hypothesis, energy-intensive trade and growth-led energy consumption. Therefore, this paper contributes to the existing literature on energy-employment nexus by proposing nonlinear model specifications that incorporate these macroeconomic factors for devising harmonious policies within these market segments in ASEAN-5. Addressing endogeneity problem, our 2SLS-FE and panel threshold estimations show that the energy-reducing role of employment has deteriorated following an increase in FDI, GDPPC and trade, specifically when trade exceeds US$264.21 billion. Meanwhile, energy-led job destruction is mitigated with employment slightly rebounding following an increase in FDI and GDPPC, specifically when GDPPC exceeds US$8,233.78. Therefore, employment-led energy efficiency policy should be complemented with emission-controlled growth-led FDI and trade policies to minimise any potential environmental threat, while growth-promoting and FDI-attracting policies can create employment in energy-intensive ASEAN-5 economies, notwithstanding the energy-employment substitutability.

Automated summary

Past studies have neglected the role of FDI, trade, and economic growth in the relationship between energy consumption and employment. This paper proposes nonlinear models that incorporate these factors and provides policy recommendations for ASEAN-5 countries.