The Threshold Effect of FDI on CO2 Emission in Belt and Road Countries

Abstract

Under the background of the global “carbon neutrality” goal, it is of great significance to study the environmental effect of FDI in rapid economic development. This paper proposes an original framework to determine the relative influence of five factors on the Belt and Road countries with a strong FDI-CO2 association. Based on the panel smooth transition regression (PSTR) model, we establish country-specific and time-specific FDI-CO2 coefficients for 59 Belt and Road countries during 2003–2018. These coefficients are assumed to change smoothly as a function of five threshold variables, considered the most important in the literature devoted to the FDI-CO2 correlations. The results show that the degree of GDP per capita, industrialization, openness, and total factor productivity significantly influences the FDI-CO2 relationship. However, they showed obvious heterogeneity. The coefficient of elasticity of the environmental effects of FDI smoothly transitions between the different intervals, the relationship between GDP per capita and FDI-CO2 coefficient shows a bell-shaped change, the relationship between degree of trade openness and FDI-CO2 coefficient also shows a bell-shaped change, the relationship between industrialization level and FDI-CO2 coefficient shows an inverted N-shaped change, the change of a country’s technological level shows a bell-shaped relationship with the FDI-CO2 coefficient. The results indicate that PSTR model can be used to study the threshold effect on FDI’s influence on carbon dioxide emissions and the individual and time differences in coefficients of elasticity, to provide a new research perspective and new conclusions on the environmental effect of FDI in rapid economic development.