Environmental Regulation, Outward Foreign Direct Investment, and Low-Carbon Innovation: An Empirical Study Based on Provincial Spatial Panel Data in China

Abstract

The low-carbon transformation has turned out to be a challenging task faced by government agencies, enterprises, and society because of the global warming. Endorsing the expansion of the low-carbon revolution is considered as an essential measure for low-carbon alteration and advancement. Therefore, articulating realistic environmental control strategies intended to enhance the motivation level of low-carbon innovation, though outward foreign direct investment (OFDI) can produce direct and indirect influences on the growth of low-carbon innovation. According to the data of 30 provinces of China from 2004 to 2017, the relationship among environmental regulation, OFDI, and low-carbon innovation was analyzed using the spatial econometric model. Based on the analyzed data, the following conclusions were drawn. (i) From the national and regional perspectives, China’s low-carbon innovation takes understandable agglomeration features in the longitudinal dimension. In addition, environmental regulation plays a key role in promoting low-carbon innovation and regional heterogeneity. (ii) Environmental regulation might force enterprises outward foreign direct investment efficiently and increase the level of OFDI that will be capable of promoting low-carbon innovation. (iii) OFDI acts as an intermediary in the relationship between environmental regulation and low-carbon innovation, and this role has regional heterogeneity. (iv) There are significant spatial spillover effects of environmental regulation and OFDI on low-carbon innovation, environmental regulation on OFDI, and the intermediary effect of OFDI on environmental regulation and low-carbon innovation. This study supplements our understanding of the relationship between environmental regulation and OFDI, in addition to low-carbon innovation, which provides illumination for enterprise practice, as well as decision-makers.

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