Domestic environmental impacts of OFDI: City-level evidence from China

Abstract

With the increasingly severe ecological environment, seeking sustainable development between the economy and the environment has become the main social consensus. Under this background, this study explores the domestic environmental impacts of outward foreign direct investment (OFDI) activities, using the panel data of 222 Chinese cities from 2007 to 2019. The following results are obtained: (1) With every 1% increase in OFDI flows, the overall domestic environmental quality can get improved by 1.55%. (2) The home-country environmental effect differs among cities due to the economic-regional factors, being more evident in the eastern region cities, highly industrialized cities, and cities with better business facilitation. (3) Although a spatial relationship exists between cities, no obvious evidence supports the spatial spillover phenomenon. Domestic environmental quality is mainly improved by its own OFDI activities. This study has important practical significance for international investment activities and home-country environment protection with several related policy implications.