The Carbon Emissions Effect of China’s OFDI on Countries along the “Belt and Road”

Abstract

With the continuous practice of the “Belt and Road” initiative, the countries along the “Belt and Road” have achieved rapid social and economic development. However, environmental problems have become increasingly prominent. Around the world, there are comments that China’s “Belt and Road” initiative is a result of resource plundering, transfer of backward production capacity, and environmental degradation of countries along the line. This study quantitatively evaluated the static, dynamic, linear, and non-linear effects of China’s foreign direct investment on the carbon emissions of countries along the line. The results showed that: (1) The direct effect of China’s foreign direct investment on the carbon emissions of countries along the route was significantly negative. (2) The economic scale and industrial structure effects of China’s foreign direct investment increased the carbon emissions of countries along the route. The production technology effect suppressed the carbon emissions of countries along the route and played a leading role. (3) The estimation results of the system generalized method of moments showed that the carbon emissions of countries along the route were significantly affected by the lag period, but the impact was small. (4) The results of the threshold regressive model showed that the GDP and proportion of industrial added value had significant threshold effects on the carbon emissions effect of China’s outward foreign direct investment. When the GDP of countries along the route exceeded 7.2696, China’s outward foreign direct investment carbon emissions reduction effect could not be realized; when the proportion of the industrial added value of countries along the route was lower than 4.0106, China’s outward foreign direct investment carbon emission reduction effect could not be realized. Based on the research conclusion, we concluded that China and countries along the “Belt and Road” should strengthen cooperation on carbon emissions reduction, jointly promote low-carbon construction of industrial parks, accelerate cooperation on green energy projects, and establish a green development fund to achieve sustainable development of the countries along the “Belt and Road”.

China’s Outward Foreign Direct Investment and the Environmental Performance of the “Belt and Road Initiative” Countries

“…Therefore, our research question is as follows: Does China's OFDI reduce the environmental performance of BRI countries? Due to large differences in research methods and sample data, the existing literature exploring whether there is a definite relationship between China's OFDI and environmental performance in BRI countries has not yet reached a conclusion [5,10,11]. In addition, we found that most of the existing literature uses a single environmental proxy variable from a partial perspective, instead of comprehensive environmental performance.…”

“…Some studies found that the implementation of the BRI has a strong policy effect, which can effectively enhance the positive impact of China's OFDI on the environments of host countries [5,29]. Additionally, the economic scale effects and industrial structure effects of China's OFDI have increased the carbon emissions of BRI countries [11]. The production technology effect has inhibited the carbon emissions of BRI countries and played a leading role [11].…”

“…Additionally, the economic scale effects and industrial structure effects of China's OFDI have increased the carbon emissions of BRI countries [11]. The production technology effect has inhibited the carbon emissions of BRI countries and played a leading role [11]. An et al found that Chinese OFDI increases carbon emissions in countries with high and medium emissions.…”

“…(2) Core explanatory variables: According to the research of Liu and Wang [5] and Ge et al [11], we used the scale of foreign investment from China as a percentage of the host country's GDP to measure the level of Chinese direct investment in host countries to avoid the heteroscedasticity caused by absolute amounts. Specifically, we used the flow of China's OFDI as a percentage of the host country's GDP (CFDIfGDP) as the core explanatory variable.…”

“…To accurately distinguish the different effects of China's OFDI and FDI from other countries on the environmental performance of host countries, we used the scale of FDI from other countries excluding China (eCFDIfGDP) based on the variable settings of LIU and DAI [38] to measure the impact of FDI from other countries on the environmental performance of host countries. In addition, comprehensively considering the important factors affecting the environmental performance of host countries, we controlled variables such as the level of economic development (lnGPC), industrial structure (IndaddGDP), population distribution (lnPDN), trade scale (eximGDP), average level of government governance capacity (meanWGI), environmental tax burden (Poltaxgdp), and the extent to which the government does not restrict investment (InvestFree) based on existing variable settings in the existing literature [11,12,38,39]. The meanWGI was derived from the worldwide governance index in the WGI database, which includes Voice and Accountability, Political Stability No Violence, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption.…”