Does China’s Outward Foreign Direct Investment Improve Environmental Efficiency?

Under the influence of the COVID-19,the trend against globalization is also increasing.However,in the past two decades,the level of China’s outward investment has been constantly improving.At the end of 2002,China’s outward direct investment stock was only $29.9 billion.By the end of 2021,that number has grown to $2.79 trillion.The increasing level of China’s foreign investment has also aroused international doubts about the deterioration of environmental quality in host countries.Therefore,it is necessary to use an empirical model to illustrate the impact of China’s OFDI on the environment of host countries.As a top-level national cooperation initiative,the Belt and Road Initiative has attracted more and more countries to participate in it.This paper takes 134 countries along the Belt and Road as the research object,and uses endogenous SFA method and DEA method to solve the environmental efficiency of relevant countries.Besides analyzing the linear influence of China’s OFDI on the environmental efficiency of countries along the Belt and Road,it also uses partial linear function coefficient model to analyze the nonlinear effect of China’s OFDI.Since the effect of China’s OFDI on the environmental efficiency of the host country is influenced by its economic development level,the interaction term between China’s OFDI and economic development level is added in this paper for analysis.The paper also distinguishes the different impacts of China’s green OFDI and non-green OFDI on the environmental efficiency of countries along the routes.The main contributions of this paper are as follows:(1)From the perspective of "pollution paradise" and "pollution halo" hypothesis,this paper discusses the heterogeneity of economic development in the influence of foreign investment on carbon emission efficiency.(2)In order to exclude the influence of investment structure,this paper uses the data set of China’s enterprise-level OFDI collected by the China Global Investment Tracking System managed by the American Enterprise Institute,and divides China’s OFDI to B&R countries into green OFDI and nongreen OFDI.(3)This paper uses a novel stochastic frontier method,which can deal with outliers,internal conflicts between different stages and missing variables that may exist in the traditional two-stage method when estimating carbon emission efficiency.The empirical results of this paper show that:(1)The mean environmental efficiency of the countries along the Belt and Road is generally on the rise,but on the whole,the environmental efficiency is still at a low level,and there is a large room for improvement in the future.(2)The results of empirical analysis show that the heterogeneity of China’s OFDI on environmental efficiency is influenced by the level of economic development.When the economic development level is low,the impact of China’s OFDI on the environmental efficiency of countries along the routes is not significant.When the level of economic development is high,the impact of China’s OFDI on environmental efficiency is significantly positive.(3)Institutional level,entry cost and time have an impact on the heterogeneity of economic development level.Although in countries with low economic development level,economic development has no significant role in promoting FDI’s environmental efficiency,but in countries with the same low economic development level,the higher the institutional level,the lower the entry cost and time,the greater the heterogeneity of FDI’s impact on carbon emission efficiency.Based on the above research results,this paper puts forward the following policy recommendations:(1)China should continue to strengthen energy cooperation with countries along the "Belt and Road".(2)China actively promotes the transfer of environmental protection technologies.(3)China provides green finance support.(4)Policy makers in host countries should pay attention to the contradiction between reducing carbon emissions and economic development.(5)In terms of attracting foreign investment,the host country should attach importance to the introduction of green foreign investment and improve the level of domestic supporting facilities and technology.(6)Countries with a low level of economic development should strive to improve the level of institutions and reduce the entry cost and time,so as to minimize the negative impact of foreign capital inflow on environmental efficiency at a low level of economic development.