Quest for energy efficiency: the role of human capital and firm internationalization

Globalization has enabled firms to specialize and to increase the intensity of R&D, innovation, and capital in their output. Likewise, globalization has also spurred new technology, helping to make economies greener and more productive. Owing to the opportunities provided by globalization, firms are increasingly tapping cross-border markets through internationalization. We argue that firms operating in the countries more prone to the environment and energy than the home country face external and internal challenges to reduce their nonrenewable energy consumption. The external challenge appears in the shape of the increasing regulations and environmental compliance pressures from the country in which a firm operates. Internal pressure comes from the firm's human capital. Firms need a comparatively higher level of human capital to operate in countries with stringent environmental and energy consumption regulations. The higher level of human capital pushes firms to go green by reducing nonrenewable energy consumption. This chapter reviews the literature on the paradox of firm internationalization, human capital, and energy consumption to develop a testable model. The developed model is then tested by using the data from the manufacturing sector of Pakistan. The country has a comparatively higher tolerance toward environmental degradation and nonrenewable energy consumption. The results of the study highlight that the quest for internationalization can drastically increase the consumption of nongreen energy in Pakistan in the short and medium run. Further, human capital can play an influential role in channeling the demand for energy toward demand for green energy. The findings of the study yield important policy insights from the perspective of domestic environmental performance of the firms operating in South Asia.