FDI Quality, Green Technology Innovation and Urban Carbon Emissions: Empirical Evidence from China

Abstract

High-quality introduction and utilization of foreign investment is a new engine for China’s further opening up and plays a significant role in urban carbon emission reduction in the context of carbon peaking and carbon neutrality strategies. By constructing a comprehensive assessment index of Foreign Direct Investment (FDI) quality and using panel data from 283 Chinese cities from 2006 to 2019, this paper systematically examines the impact of FDI quality on urban carbon emissions and identifies the mechanism of green technology innovation in order to clarify the correlation among the three. The results show that FDI quality upgrading can significantly reduce urban carbon emissions, which is mainly manifested by FDI management and FDI export capacity to suppress total carbon emissions. The above effect of FDI quality is more significant in cities with a low rationalization degree of industrial structure, high investment in science and technology, strong environmental regulation and high dependence on foreign capital. Green technology innovation is an intermediary mechanism for FDI quality to have a carbon emission reduction effect. Looking at different areas, foreign companies in the eastern regions can promote carbon emission reduction through independent innovation, while the central and western regions essentially rely on imitative innovation; however, there is a delay in the role of innovation quality. Further study suggests that the carbon emission reduction effect of FDI quality has an obvious characteristic of threshold, which will be slightly weakened with the increase in the quantity of imitative innovation but strengthened with the improvement of the quantity of independent innovation and the quality of innovation. The conclusion aims to provide policy implications for China to explore a sustainable pathway that combines promoted opening with carbon reduction targets.