Outward foreign direct investment and urban green productivity: Promote or inhibit?

Abstract

This paper constructs an empirical model that fits the Chinese context by incorporating human capital, foreign direct investment (FDI), and economic development level into an absorptive capacity category. Concurrently, the model incorporates absorptive capacity into the threshold model. The empirical analysis, using Chinese provincial-level data from 2004 to 2020, shows that outward foreign direct investment (OFDI) activities can promote green total factor productivity (GTFP) and that the green growth effect is more substantial for the stock size of OFDI. Further study finds that OFDI in both regions with lower levels of green growth and lower marketization enhances GTFP; the level of regional marketization also affects the green growth effect of OFDI, with the difference that OFDI negatively affects GTFP when the regional marketization level is higher. The three absorptive capacities of the central variables also affect the green growth effect of OFDI and have a threshold effect on GTFP. OFDI activities thus remain a vital strategy for China's high-quality economic development, and the supportive policies related to OFDI warrant urgent attention. This paper provides empirical evidence and policy implications for fully acknowledging the contribution of OFDI activities in optimizing the absorption capacity channel and improving regional GTFP.