Low carbon city and FDI inflows: evidence from China.

Abstract

Achieving the goals of "carbon peaking" and "carbon neutrality" becomes one of the important elements of the ecological civilization strategy in China. Based on the strong balanced panel data of 281 prefecture-level cities in China from 2006 to 2019, we investigate the impact of Low-carbon city pilot policy (LCCP policy) on FDI inflows by using the multi-period DID model and intermediary model. After that, we discuss the heterogenous impact in terms of both policy tools and geographic locations. Furthermore, we investigate the spillover effects of the LCCP policy on the FDI inflows of surrounding cities using the Spatial Dubin DID model. The results show that (1) the LCCP policy can significantly attract FDI through reducing compliance costs and promoting technological innovation, and the Bacon decomposition and the placebo test show that the estimation error is small and the regression result is relatively stable; (2) command-mandatory tools have negative effects on FDI, while market-oriented tools can effectively attract FDI in pilot cities, but voluntary tools have no significant effect on FDI in pilot cities; (3) the LCCP policy can significantly promote the inflows of FDI in the eastern and western regions, but it does not significantly promote the FDI in central regions; (4) there is a positive spillover effect on FDI inflows to surrounding cities.