Spatio-temporal impulse effect of foreign direct investment on intra- and inter-regional carbon emissions

Abstract

The introduction of foreign capital has promoted China's economy but causing environmental pollution problems. A novel PVAR model integrating spatio-temporal analysis impulse could eliminate the endogenous problem and reveal the evolution of FDI shocks on carbon emissions. Traditional models often ignore endogeneity problems, which leads to insignificant results. The existing research has mostly focused on the impact of foreign direct investment (FDI) on CO2 emissions at intra-region level. This study filled the research gaps by studying the spillover effect of FDI on carbon emissions at inter-regional level. The study aims to characterise the impact of FDI on carbon emissions at intra- and inter-regional levels where the endogenous problem is eliminated. Based on the panel data of the 229 cities in China from 2003 to 2015, this paper establishes a novel panel vector autoregression (PVAR) model which integrated the spatio-temporal impulse analysis to reveal the evolution of FDI shocks on intra- and inter-regional carbon emissions. The results corroborate that the evolution of FDI shocks increased intra-regional carbon emissions as shown by the inverted U-curve; while the evolution of FDI shocks decreased inter-regional carbon emissions as shown by the U-curve. Interaction mechanism between FDI and China's low-carbon economy should be strengthened.