Environmental regulation and outward FDI of Chinese listed companies: The role of technological innovations

Weixiong Chen and Hanyu Hao

Economic Analysis and Policy, 2025, vol. 87, issue C, 1797-1816

Abstract: Environmental regulations are essential for resolving the pollution diversion dilemma and promoting responsible international investment. This study examines the effect of environmental regulations on the dual margin of outward foreign direct investment in China. Using microdata from publicly listed Chinese firms, we apply Poisson regression and a fixed effects model to investigate the relationship between environmental regulations and OFDI. The findings reveal that environmental regulations incentivize OFDI by compelling firms to adopt green practices and engage in technological innovation. This effect is particularly pronounced for nonstate−owned enterprises with higher returns to capital and firms involved in cross−border mergers and acquisitions. Moreover, the findings confirm that regulated firms do not shift pollution when faced with operational costs and risks; instead, they pursue responsible international investment. This analysis demonstrates the effectiveness of China’s environmental regulations in fostering responsible international investment and provides valuable insights for firms in developing countries that seek to enhance global competitiveness.

Keywords: Environmental regulation; Outward foreign direct investment binary margin; Pollution governance; Environmental protection interview (EPI) (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:87:y:2025:i:c:p:1797-1816

DOI: 10.1016/j.eap.2025.07.023

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