The Comprehensive Impact of Outward Foreign Direct Investment on China’s Carbon Emissions

Abstract

Outward foreign direct investment (OFDI), as an important carrier of global technology and industrial transfer, will significantly impact the home country’s environment. Therefore, using data from 30 Chinese provinces gathered between 2004 and 2019, we empirically analyze the impact of OFDI on China’s carbon emissions across two dimensions: total carbon emissions and carbon emission efficiency. In addition, when the previous studies explored the impact of OFDI on carbon emissions, there were few studies on the synergistic emission reduction effect of OFDI. Therefore, based on sorting out previous research, we incorporated OFDI, technological progress, industrial structure upgrading, international trade, and carbon emissions into the same analytical framework. Based on the classic fixed model, we introduce the interaction term further to explore the synergistic emission reduction effect of OFDI. Our model suggests that OFDI has increased total carbon emissions, but the associated reverse technology spillover has improved carbon emission efficiency. We also found a synergistic emission reduction effect between OFDI and technological progress, international trade, and industrial structure upgrading. This synergistic effect suppresses the growth of total carbon emissions and improves carbon emissions efficiency. Robustness testing confirmed these results. This research also provides a relatively novel perspective for China to achieve the goals of “carbon peaking” and “carbon neutrality”.