Foreign Direct Investments, Energy Efficiency and Innovation Dynamics

Rapid growth in energy consumption influences on the one hand energy prices and endangers energy supply security; on the other hand it distresses ecological balances. In this respect, the efficient use of energy resources plays a key role for challenging these problems in the long run. Thus, without innovations and its diffusion to broad regions, global energy efficiency improvements cannot be realized. In this context, Foreign Direct Investments (FDI) are important elements of technology transfer to developing countries and to emerging economies. The aim of this paper is to explain the relationship between FDIs and technology determined energy efficiency. For this purpose, the change of industrial energy intensity has been analyzed with the decomposition methodology that adjusts structural effects from energy intensity changes. Finally, a panel data analysis has been conducted that points out that there is a significant correlation between FDI and technology determined energy efficiency improvements in the eastern EU-members and Cohesion countries.