The Influence Mechanism of Bidirectional Foreign Direct Investment on Green Total Factor Productivity in China’s Manufacturing Industry

Zongxian Feng, Huiting Hua and Lingle Wang ()
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Zongxian Feng: School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710049, China
Huiting Hua: School of Economics and Finance, Xi’an Jiaotong University, Xi’an 710049, China
Lingle Wang: School of Marxism, Xi’an Jiaotong University, Xi’an 710049, China

Sustainability, 2024, vol. 16, issue 15, 1-27

Abstract: Recently, China has actively advocated green transformation in manufacturing. This paper applies the Malmquist–Luenberger (ML) index method to measure the green total factor productivity (GTFP) and its decomposition of 28 segments of China’s manufacturing industry from 2004 to 2020; then, it empirically investigates their causal relationship and impact mechanism on bidirectional foreign direct investment (FDI). The results show that inward foreign direct investment (IFDI) and outward foreign direct investment (OFDI) significantly inhibit GTFP, whereas the interactive development level between the two (DFDI) significantly promotes GTFP during the sample period. After decomposing GTFP, it is found that IFDI or OFDI has a significant promotional effect on green technical change (GTC) but an inhibitory effect on green technical efficiency change (GEC), while DFDI has a promotional effect on GTC or GEC. Further research also finds that OFDI can effectively weaken the inhibitory effects in the long run; IFDI, OFDI, and DFDI have the same direction of impact on GTFP or GEC, only showing heterogeneity at the significant level, while their impact on GTC has uncertainty in different types of manufacturing industries. The more rational the manufacturing industry structure, the more significant the promotional effect of IFDI, OFDI, and DFDI on GTFP.

Keywords: inward foreign direct investment (IFDI); outward foreign direct investment (OFDI); green total factor productivity (GTFP); Malmquist–Luenberger (ML) index (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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