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China's outward foreign direct investment in energy sector: The role of "intimate" relations between countries.

ABSTRACT: Based on the data of China's outward foreign direct investment (OFDI) in energy sector to 133 countries from 2005 to 2014, this paper uses a gravity model to investigate the impact of "intimate" relations on China's OFDI locations in energy sector. We find that the "intimate" relations have significant effects on China's OFDI locations in energy sector, namely: bilateral senior leaders' visits, institutional distance, genetic distance, and immigration. Holding other factors fixed, for each one more bilateral senior leaders' visit between China and the host country, China's OFDI in energy sector for the host country will increase by 5.44%. If the genetic distance from China and host country increases by 1%, China's OFDI in energy sector will fall by 1.69%. For every 1% increase in the institutional distance between China and host country, China's energy OFDI will decrease by 1.09%. For every 1% increase in a country's immigration to China, China's energy OFDI will increase by 0.46%. Further, after distinguishing developed and developing countries, we find that compared with developed countries, "intimate" relations have greater impacts on China's energy OFDI in developing countries. Finally, based on the dominance analysis, considering China's "intimate" relations with countries along the "Belt and Road" and current locations of China's OFDI, we find that China should further expand energy investment in countries along the "Belt and Road".

SUBMITTER: Tan N

PROVIDER: S-EPMC8274856 | biostudies-literature |

REPOSITORIES: biostudies-literature

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Project description:Highlights • This paper studies the relationship between FDI and carbon emissions.• It considers the innovation, regulation, and efficiency levels of the host countries.• A Panel Autoregressive Distributed Lag was applied on 21 countries divided by income level, for a period from 2001 to 2017.• FDI decreases emissions in high-income countries, while increasing them in the short run in middle-income countries, which supports the Pollution Haven Hypothesis.• This paper reveals that regulatory measures seem to be less effective in reducing emissions in high-income countries. Besides bringing countries closer, the effects of globalization can help increase the production of goods and services, and foster economic growth. Foreign direct investment (FDI) is one of the processes of globalization. One aspect of globalization that has piqued the interest of economists, is the transfer of polluting industries between countries. A principal factor in this are discrepancies of environmental regulations, and these have also been instrumental in a failure to control pollution worldwide. With this impasse in mind, a Panel Autoregressive Distributed Lag was applied to evaluate the impacts of FDI on the carbon dioxide emissions of 21 countries divided by income level, for a period from 2001 to 2017. This methodology allowed the analysis of the resulting dynamics of pollution into the short-run and long-run. The characteristics of efficiency, innovation, and regulation are crucial to better understand the consequences of flows in FDI. Regulation seems to increase pollution in high-income countries, which merits further discussion. FDI decreases emissions in high-income countries, while increasing them in the short-run in middle-income countries, which supports the Pollution Haven Hypothesis. Nonetheless, the capacity of middle-income countries to absorb technology is crucial for them to benefit in the long-run. Trade openness is also highly influenced by environmental regulation in middle-income countries. Since our aim is to understand the transfer of polluting industries, an analysis of emissions from the industrial sector provided a robustness check. It also revealed that policymakers do not seem to be paying sufficient attention to innovation and controlling the environmental degradation that this sector causes.

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China's outward foreign direct investment in energy sector: The role of "intimate" relations between countries.

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