What Explains the Greening of China's Energy ODI? The Role of Environmental Regulation, Endowments and Financial Factors

Mohan Xu and Yao Tang

MPRA Paper from University Library of Munich, Germany

Abstract: In the current study, we document a steady rise in the share of renewable energy projects in China's outward direct investment (ODI) in the energy sector. We examine the driving forces and find that both host country's environmental regulation and financial factors has generated different or even opposite effects on China's ODI in fossil fuels and renewable energy. Specifically, China's ODI in fossil fuels is positively correlated with endowments in fossil fuels, electricity consumption, low financing costs, and high exchange rate volatility. In comparison, ODI in renewable energy is more likely to occur in host countries with stricter environmental regulation and less likely to be impeded by tighter monetary policy. The results suggest that the combination of regulatory policies and financing conditions can have an important influence in the global transition to renewable energy.

Keywords: direct investment; fossil fuels; renewable energy; environmental regulation; monetary policy; exchange rate volatility (search for similar items in EconPapers)
JEL-codes: E43 F21 Q40 (search for similar items in EconPapers)
Date: 2025-04-02
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