The impact of outward foreign direct investment on green innovation: the threshold effect of environmental regulation

Outward foreign direct investment (OFDI) in an open economy has gradually become an important source of green innovation (GI). With the rapid development of China's OFDI, this research studies the impact of OFDI on the country's GI, employing panel data of 30 provinces from 2006 to 2017. We first use the Super-SBM model to measure GI performance and then test the impact of OFDI on GI with the system GMM model. Evidence finds that the negative impact of OFDI on GI is not significant on the whole, but the results of regional regression show that impact of OFDI on GI exhibits obvious regional differences. We then utilize the dynamic threshold panel model to determine the non-linear relationship between OFDI and GI through the perspective of environmental regulation in order to avoid the bias caused by ignoring the impact of institutional factors and time dynamic change. After dividing environmental regulations into command control environmental regulation and market incentive environmental regulation, the research results show that the double threshold effects of both environmental regulations are significant. Command control environmental regulation does not play a role in promoting the effect of OFDI on GI. When the intensity of market incentive environmental regulation is low, OFDI negatively affects GI. Moreover, only when the market incentive regulation shows high intensity can OFDI significantly promote GI. With the continuous growth of China's OFDI, it is therefore necessary to determine the appropriate environmental regulation to improve the reverse spillover effect of OFDI enterprises on the country's GI.

Automated summary

The study shows that the overall impact of outward foreign direct investment on green innovation in China is not significant, but there are clear regional differences. Through analysis with a dynamic threshold panel model, it is found that there are significant double threshold effects between environmental regulation and the relationship between outward foreign direct investment and green innovation.