The severity of foreign direct investment components on China's carbon productivity

Abstract

Carbon dioxide emission reduction is one of the major pressures on China's current economic advancement, and the improvement of carbon productivity (CP) has become particularly relevant. Promoting sustainable foreign direct investment (FDI) can help improve carbon productivity. As a result, the need to assess the severity of FDI components on sustainable economic growth as the world economy interoperates and expands is imperative. Using 30 Chinese provinces, the study investigates the impact of FDI components on China's CP from 2006 to 2020. The spatial model is utilized in this study to assess the interactive influence of these components on CP. It was found that, while CP is significantly influenced by inbound FDI (IFDI), its spatial spillover impact is not significant. Conversely, outbound FDI (OFDI) negatively affects local CP, as well as significantly reduces CP through spatial spillover in nearby regions. Also, the developmental coordination of IFDI and OFDI significantly enhances the country's CP, primarily due to positive spatial spillover effects. There exists a regional heterogeneity exhibited by the influence of both IFDI and OFDI on CP. In the eastern region, the IFDI has a negative impact on CP. However, OFDI possesses a positive effect on CP in the eastern region and an adverse influence in the western, southern, and northern regions. These results together with the policy implications will provide great insights into encouraging green investment from foreign countries.