Empirical Economic Bulletin, An Undergraduate Journal


The availability of energy is essential in initiating and sustaining economic growth. FDI has also been positively linked to economic growth although some argue that economic growth promotes FDI. Studies examining the government effectiveness of nations have suggested FDI is more effective and energy resources are used more effectively when a country has solid governance. While studies have examined these aforementioned macroeconomic issues, there is no empirical study that examines all these variants within the same model. This paper investigates these factors and their effect on economic growth throughout 50 nations for the year of 2005. Economic growth is calculated in terms of GDP growth per capita as an annual percentage. The factors examined in this study include energy consumption, foreign direct investment, and government effectiveness. The OLS model used contains multiple proxies for energy consumption including fuel exports, fossil fuel energy consumption, electric power consumption in terms of kilo watt hours per capita, and electricity production in terms of kilo ton of oil equivalent. FDI is measured as percentage of GDP. To account for variances in governmental quality this paper uses government effectiveness as gauged by the Heritage Foundation and Wall Street Journal’s annual index of economic freedom report. The results show a country’s initial GDP per capita, FDI inflows as relative to GDP, electricity production in terms of an oil equivalent, and fossil fuel energy consumpion, significantly impact their percent growth of GDP per capita.