Green finance and outward foreign direct investment: evidence from a quasi-natural experiment of green insurance in China

Abstract

Institutions have an important impact on corporate outward foreign direct investment, while differences in environmental regulations play a significant role in international capital flows based on the pollution haven hypothesis (PHH). This study examines the effect of green insurance, an institutional innovation tool designed to diversify and transfer environmental risks, on the decisions of firms regarding their overseas investment. Using a quasi-natural experiment of green insurance in 2007, this paper investigates the relationship between green insurance and corporate outward foreign direct investment and then further examines the effects of marketization and the Belt and Road Initiative (BRI) on this relationship. The results show that green insurance significantly reduces corporate outward foreign direct investment. Furthermore, the effect of green insurance on corporate outward foreign direct investment is stronger in regions with higher marketization and is weaker when investing in BRI countries. These findings suggest that green insurance is playing a gradually important role in influencing corporate overseas investment decisions. This study contributes to the research on the effects of institutions on corporate outward foreign direct investment while also broadening the research perspective of the PHH.