Macroeconomic determinants of renewable energy expansion in Cambodia: Evidence from a VAR approach

This study examines the dynamic interrelationships among foreign direct investment (FDI), trade openness (TO), gross domestic product (GDP), electricity consumption (EC), and renewable energy (RE) capacity in Cambodia from 2000 to 2023. Using a vector autoregression (VAR) framework, the analysis examines how shocks to these macroeconomic and energy variables are linked to subsequent movements within the system. Cambodia provides a relevant case due to its rapid economic expansion, rising electricity demand, and increasing exposure to external investment and trade, alongside a gradual and uneven expansion of RE. The results indicate that innovations in FDI, GDP, and TO are followed by statistically significant responses in EC and RE capacity over the forecast horizon, reflecting strong co-movement between economic activity and energy dynamics. EC shocks are likewise associated with short- to medium-term responses in GDP, highlighting the close linkage between energy demand and economic fluctuations. RE capacity exhibits more gradual and modest responses, suggesting that its role within the system remains supportive rather than dominant during the sample period. Variance decomposition results further show that fluctuations in economic variables account for a substantial share of forecast error variance in energy-related variables. At the same time, RE contributes a smaller but non-negligible share to the variability of economic indicators. These findings should be interpreted as evidence of dynamic associations rather than structural causal effects. The study offers insights into how macroeconomic conditions and energy variables evolve jointly in a late-developing, energy-importing economy, providing a descriptive basis for discussing coordination challenges and future research directions, rather than prescribing policy conclusions. • Nexus between FDI, TO, GDP, EC, and Renewable Energy in Cambodia. • The data is collected from 2000 to 2023. • The study employs the VAR model.