The Impact of Foreign Direct Investment on Green Technology Innovation: Evidence from the Threshold Effect of Absorptive Capacity

Abstract

ABSTRACT Promoting green technology innovation has become a pivotal driver for nations worldwide to achieve sustainable development as a result of the increasingly pressing challenge posed by climate change. As one of the main forms of modern capital internationalization, foreign direct investment (FDI) has become a focal point for countries aiming to leverage its potential for green technology innovation. This article employs a panel threshold model to examine the impact of FDI on green technology innovation in China from the perspective of absorptive capacity, primarily characterized by economic advancement, infrastructure construction, and environmental regulation. The results demonstrate that, first, the impact of FDI on green technology innovation exhibits a distinct threshold effect; when absorptive capacity falls below the threshold value, FDI can impede green technology innovation, but when absorptive capacity exceeds the threshold value, FDI can facilitate green technology innovation. Second, the impact of FDI on green technology innovation is more pronounced in the eastern region and the southeastern region of Hu line. Third, the impact of FDI on green technology innovation reveals a boundary effect within provincial border cities. However, the radiation effect of FDI on green technology innovation demonstrates limitations. The advancement of green technology innovation can effectively address environmental challenges. This article enhances our understanding of the impact of absorptive capacity on FDI and the role that plays on green technology innovation. The contribution of this work will broaden understanding of the relationship between FDI and green technology innovation.