From Investment to the Environment: Exploring the Relationship between the Coordinated Development of Two-Way FDI and Carbon Productivity under Fiscal Decentralization

Xiaodan Gao and Yinhui Wang ()
Additional contact information
Xiaodan Gao: College of Commerce, Jeonbuk National University, Jeonju 54896, Republic of Korea
Yinhui Wang: College of Commerce, Jeonbuk National University, Jeonju 54896, Republic of Korea

Sustainability, 2023, vol. 16, issue 1, 1-20

Abstract: The governance exerted by governments plays a pivotal role not only in driving local economic advancement but also in bolstering environmental management and enhancing Carbon Productivity (CP). This paper investigates the impact of two-way Foreign Direct Investment (FDI) coordination development (DFDI) on China’s CP from the perspective of fiscal decentralization (FD). Utilizing panel data from 30 Chinese provinces spanning 2006–2020, we apply a Spatial Error Model to discern that DFDI effectively elevates CP. However, an excessively high degree of FD constrains the potential environmental performance benefits that FDI might offer. Further analysis using a Dynamic Threshold Model reveals a significant dynamic non-linearity in the impact of DFDI on CP under the threshold effect of FD. In contrast to Inward FDI (IFDI), China’s Outward FDI (OFDI) actually impedes the enhancement of CP. Our results underscore that well-calibrated FD can align economic growth with environmental sustainability. This study offers insights into policy frameworks fostering sustainable development in China and similar economies. It indicates that tailored policies are essential to mitigate the diverse environmental impacts of different FDI flows, supporting sustainable investment practices.

Keywords: coordinated development of two-way FDI; carbon productivity; fiscal decentralization; dynamic threshold model; spatial error model (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/2071-1050/16/1/182/pdf (application/pdf)
https://www.mdpi.com/2071-1050/16/1/182/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:16:y:2023:i:1:p:182-:d:1306760

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().