Nonlinear Effects of Urbanization and Outward Foreign Direct Investment on Carbon Emissions in China

Ming Yi,Mengqi Gong,Yue Wang,Ting Wu

doi:10.3390/su10124411

Abstract

It is essential to explore the relationship between China’s urbanization, outward foreign direct investment, and carbon emissions, in order to better understand China’s carbon emissions reduction target. To this end, the nonlinear Granger causality test and Markov-switching model are applied to analyze the structural effects of urbanization and outward foreign direct investment on domestic emissions, on the basis of time series data from 1984–2016. The results show that the promotion effect of outward foreign direct investment on carbon emissions is increased from low-carbon regime to high-emission regime. Specifically, 1% increase in OFDI leads to a rise in carbon emissions by 0.064% and 0.112% under the former and latter regime respectively. Unlike the effect trend of outward foreign direct investment, the effect of urbanization on carbon emissions is decreased from a high-emission regime (5.221% rise in carbon emissions with 1% increase in the level of urbanization) to a low-carbon regime (3.133% rise in carbon emissions with 1% increase in the level of urbanization).

Highlights

The issue of global warming caused by Greenhouse Gas (GHG) emissions is a global concern
The main objectives of this study are as follows: researching on the relationships between urbanization, outward foreign direct investment (OFDI) and carbon emissions from time series perspective, analyzing the interaction mechanism between variables by nonlinear Granger causality test, and adopting a Markov-switching model to investigate the non-linear effect of urbanization and OFDI on carbon emissions
The increase of carbon sources is a result of the sharp growth in energy consumption which is due to the transformation of production technology and lifestyle during the urbanization process

Summary

Introduction

The issue of global warming caused by Greenhouse Gas (GHG) emissions is a global concern. Others believe that the economic development accelerated by urbanization could increase energy efficiency and reduces carbon emissions [3,4,5] In addition to these two arguments, empirical evidence shows that the relationship between urbanization and carbon emissions is non-linear [6,7,8,9]. This work contributes to the existing research by utilizing the frontier nonlinear time series methods to explore the relationships between urbanization, outward foreign direct investment and carbon emissions in China. The main objectives of this study are as follows: researching on the relationships between urbanization, OFDI and carbon emissions from time series perspective, analyzing the interaction mechanism between variables by nonlinear Granger causality test, and adopting a Markov-switching model to investigate the non-linear effect of urbanization and OFDI on carbon emissions

How Urbanization Affects Carbon Emissions

Markov-switching Model

Nonlinear Test

Markov-switching Model Estimation