The Moderating Role of Host Investment Environments on the Relationship between Enterprises’ OFDI and Green Innovation: Evidence from China

Abstract

This study investigates whether and how outward foreign direct investment (OFDI) affects green innovation using a sample of Chinese A-share listed companies from 2006 to 2020. We find that OFDI significantly promotes green innovation, not only for gaining legitimacy, but also to mitigate liabilities of foreignness and cultivate competitiveness. The result is robust for endogeneity and among other robustness tests. Moreover, host economic development, environmental regulation, and national governance positively moderate the relationship between OFDI and green innovation, indicating that the heterogeneity of host investment environments effectively affects OFDI enterprises’ motivation to make green innovation. Further analysis shows that OFDI promotes green innovation more significantly in state-owned and less-overseas-experienced enterprises, heavy pollution industries, and areas with strict environmental regulations in the home country. This study introduces the heterogenous host investment environments into the relationship between OFDI and green innovation, and examines its moderating role, which reveals the mechanism of OFDI affecting green innovation. This study also provides a valuable reference for guiding enterprises’ internationalization and resisting overseas investment risks.