The effect of China’s outward foreign direct investment on carbon intensity of Belt and Road Initiative countries: A double-edged sword

Abstract

The objective of this study is to identify the double-edged sword effect of China’s outward foreign direct investment (OFDI) on carbon intensity of Belt and Road Initiative (BRI) countries. To this end, a two-tier stochastic frontier model is employed to estimate the two-sided effects of China’s OFDI simultaneously based on a sample of 56 BRI countries covering the period from 2005 to 2018. The empirical results show that China’s OFDI has both promotion effect and reduction effect on carbon intensity of BRI countries and the BRI region on average is left with a net reduction effect of approximately -3.0%. Such net effect of China’s OFDI on carbon intensity varies over time and across countries. Furthermore, the net effect of China’s OFDI varies with different levels of economic development, energy consumption, industrialization, and urbanization of individual BRI countries. Policy implications are provided for both China and BRI countries to promote sustainable cooperation and accelerate low-carbon development in BRI region.