Environmental Regulation, Institutional Distance and China's Outward Foreign Direct Investment in the Belt and Road Countries

Abstract

Abstract Recent trends in green development have led to a proliferation of studies examining the relationship between environmental regulation and outward foreign direct investment (OFDI). However, there has been little discussion about the role of institutional distance in the impact of environmental regulation on OFDI. This study aims to explore the direct impact of environmental regulation on OFDI, and the moderating role of institutional distance in the relationship between the two. The results showed that environmental regulation has a significant positive effect on China’s OFDI, while institutional distance has a significant negative impact. Further analysis found that before the Belt and Road Initiative (BRI), environmental regulation positively affects OFDI, while after BRI, it does not have a significant impact on the OFDI. Furthermore, a positive moderating effect was detected after the BRI, and a negative moderating effect was found in host countries with worse institutions than China. The findings have significant implications for understanding how China’s OFDI responds to the environmental regulation of host countries, considering the impact of institutional distance at the same time. This study will help provide further implications for the development of foreign direct investment strategy and the formulation of government policies.