The green halo effect of China’s OFDI: evidence from countries along the Belt and Road

Abstract

The growth of China’s OFDI (outward foreign direct investment) is a unique feature of the “Belt and Road” project. Does China’s OFDI have a green halo effect on countries along the Belt and Road (B&R)? Is this green halo effect somehow asymmetrical? What is the underlying mechanism? This paper systematically examines how China’s OFDI exerts its influence on green technology spillovers, based on 56 B&R countries’ 2003–2019 panel data. This study makes three significant findings: Firstly, China’s OFDI has positive asymmetric characteristics in promoting green technology spillovers to host countries mentioned, which have lower income levels and openness. Secondly, strict relative environmental regulation can act as a “pressure pool,” significantly enhancing the “green halo effect”; Thirdly, China’s OFDI can help host countries obtain more green technology spillovers through three channels: expanding host countries’ economic scale, upgrading host countries’ industrial structure, and suppressing host countries’ use of non-renewable energy. These findings point the way for 56 host countries to better accessing green technology spillovers.

Impact of China’s outward direct investment on economic efficiency

“…Therefore, the advantages of China's ODI to the world are rather debatable. For example, Cai, Zhao, Wu, Ge, and Long (2023) found evidence that China's ODI can promote green technology spillovers with an asymmetric impact based on different income levels, degrees of openness, and regulations in the host country. However, the role of investments from China throughout recent years has gradually shifted from resource-seeking to investment in technology-intensive industries.…”