14 J. Asian Dev. Stud, Vol. 4, Issue 3, (September 2015) ISSN 2304-375X Impact of Foreign Direct Investment on Energy Saving in South Asian Countries Amir Zeeb 1 , Fauzia Maqsood 2 and Faisal Munir 3 Abstract This study empirically investigates the impact of Foreign Direct Investment (FDI) on Energy Intensity (EI) in case of South Asia by using panel data set over the period of 1990 to 2013. To achieve this objective, Least Square Dummy Variable Model (LSDV), Fixed Effect Model (FEM) and Random Effect Model (REM) are used and for model selection we incorporated efficiency test (F-test) and Hausman specification test. Energy saving is important because it saves money but also help to produce more goods with less energy, FDI is one of the key channel with which energy knowledge spillover take place and economic growth happened. On the basis of Hausman specification test and model efficiency test we concluded that Fixed effect model is an appropriate model in which FDI remain insignificant with negative sign. So our results remain in line with previous literature on the subject. In our analysis, we have seen that FDI inflows are not responsible for the EI of the South Asia, since it depends also on other economic factors. In other words, South Asian countries emphasis on the attitude that needs to develop in order to attract and benefit from more FDI inflows and also use of issue-linkages, as for intended by the Kyoto Protocol (clean development mechanism), which explain such FDI that brings energy reducing technology transfer, which should be encouraged. Keywords: FDI, Energy Intensity (EI), South Asia, LSDV, Random effect/Fixed effect 1. Introduction In Developing countries energy saving technologies has been adopted because it concerns energy securities and climate changes. But on the other hand, it is difficult for developing countries to achieve such goals; it can only happen when developing countries absorb technology diffusion from developed economies. Developed economies are considered as potentially energy saving technologies which can save energy. This can be done by the outflow of foreign direct investment (FDI) of developed countries and inflow of FDI to developing economies. At international level technological diffusion is possible with key channel of FDI (Keller, 2004). Economic sustainability 4 and growth are basic aims of any economy. But, it could cause some side effects like Greenhouse Gas 5 (GHG) emission, which is due to the increase in the energy demand. It is expected that demand of the world energy will grow at an average growth rate of 1.8% annually between 2005 and 2030 (IEA, 2007). In global energy demand contribution of developing countries will be 74%. Above of all 45% of increase in the energy demand of the world will only be due to the two countries China and India. Primary energy demand in China and India is expected to grow at an average annual growth rates 3.2%, 3.6%, respectively over the period of 2005 to 2030 (IEA, 2007). It is better to understand the determinants of energy demand that how the energy demand is going to change in the future 1 M.Phil Economics, University of Gujrat, Punjab, Pakistan, Email: amir_boobak@yahoo.com 2 Dean, Faculty of Social Sciences, University of Gujrat, Pakistan 3 M.Phil Economics Scholar at Department of Economics, University of Gujrat, Punjab, Pakistan 4 It is an ability or capacity of something to be maintained or to sustain itself. 5 Such gas in our atmosphere which emits radiations and absorb too, within the range thermal infrared range. This is also the cause of greenhouse effect.