Will Temperature Changes in the Host Country Reduce the Inflow of International Direct Investment? Micro Evidence from Chinese Listed Companies

Yanyan Ouyang (), Chuanwang Sun, Xiaonan Wei () and Chuangyu Xie ()
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Yanyan Ouyang: Sun Yat-Sen University
Xiaonan Wei: China University of Geosciences (Beijing)
Chuangyu Xie: Sun Yat-Sen University

Environmental & Resource Economics, 2023, vol. 86, issue 4, No 3, 806 pages

Abstract: Abstract With the ever-increasing global temperatures, the long-term climate change trend has become an essential part of global investor strategies. Before dealing with the reduction of international direct investment caused by climate change, governments and enterprises should clarify the causal relationship between temperature change and international direct investment, as well as the impact mechanism. This paper empirically examines the impact of host country temperature changes on the probability and scale of international direct investment inflows using data on Chinese enterprises’ foreign direct investment and the temperature of each host country from 2009 to 2019. The results show that a 1% increase in host country temperature decreases the probability of Chinese firms’ FDI inflows by 5.92% and reduces the size of FDI by 2.60%. The host country’s temperature change has a cumulative effect on inhibiting Chinese enterprises’ direct investment. The mechanism analysis shows that high temperatures increase the number of meteorological disasters, causing economic losses and reducing economic growth rates, which in turn inhibit direct investment from China. The negative effect of host country temperature change on firms’ location choice for international investment is more significant in manufacturing, non-state, and low R&D investment firms.

Keywords: Temperature change; Foreign direct investment; Location selection; Meteorological hazards (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s10640-023-00812-3

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