Impact of Foreign Direct Investment on Green Total Factor Productivity: New Evidence from Yangtze River Delta in China

Abstract

China has entered a period of high-quality development. As an important feature of high-quality development, green total factor productivity (GTFP) has attracted much attention. With the opening-up and economic globalization, the Yangtze River Delta, one of the strongest and most technological regions in China, has been attracting an increasing amount of foreign direct investment (FDI). This study investigates if FDI is conducive to GTFP under the constraints of specific resources and a specific environment, which has important practical significance for the utilization of FDI in the Yangtze River Delta and China. Through a literature review and sorting the current FDI in the Yangtze River Delta, the GTFP and its decomposition indicators of 27 cities from 2004 to 2019 are calculated based on their energy consumption and pollution. Using the fixed-effects model and threshold model of panel data, this study tests whether FDI promotes GTFP and whether a nonlinear impact of FDI on GTFP exists. It finds that (1) the GTFP of most cities in the Yangtze River Delta improved during the sample period, but their annual growth declined. Technology is the dominant factor affecting the growth of GTFP. (2) FDI in the Yangtze River Delta has increased, and the investment structure has improved, but the distribution among cities is uneven. (3) The scale and quality of FDI have a positive impact on GTFP, which supports the “Pollution Halo” hypothesis. Economics, education, networks, and trade openness can promote the growth of GTFP, while environmental regulation, government intervention, and industrialization have a negative impact. (4) The quality of FDI, economics, the industrial structure, the environmental regulation, and the internet are each a significant single threshold characteristic for the impact of FDI on GTFP. When one of these factors is lower than a certain threshold, FDI has less impact on GTFP. When one exceeds a certain threshold, FDI’s positive promotion effect on GTFP significantly improves. Based on the analysis, this study offers some suggestions. The government should improve the FDI selection mechanism based on realities, make appropriate environmental regulatory policies, strengthen the construction of networks, and improve the “Internet+” effect on productivity.