Causal Relationship Between C02 Emission, Renewable Energy, Trade Openness and Foreign Direct Investment and Output Volatility

Abstract

This study explores the causal relationships between the Index of Industrial Production (IIP), output volatility (OV), renewable energy (RE), foreign direct investment (FDI), and trade openness (TO) across selected countries in East Asia and Pacific (EAP). Using, Fourier causality test, we find RE causes OV in Australia and Malaysia, indicates short-term fluctuation. Conversely, FDI's impact on OV, especially in India, indicating the need for regulatory measures to manage FDI for economic steadiness. Policymakers should craft regulations on renewable energy investments to stabilize economic volatility.  Additionally, the complex relationship between environmental policies and OV require integrated approach in policy design.