Does Foreign Direct Investment Improve Inclusive Green Growth? Empirical Evidence from China

Abstract

Inclusive green growth is a sustainable development mode in pursuit of economic growth, social equity, and environmental protection. At present, a large number of articles have discussed the impact of foreign direct investment (FDI) on economic growth, green growth, and inclusive growth. However, the research about inclusive green growth is mainly descriptive. This paper constructs China’s inclusive green growth index and analyzes the impact of FDI on inclusive green growth in China. Specifically, by constructing a super efficiency slacks-based measure model (which has two undesirable outputs: income disparity and environmental pollution) to calculate the Inclusive green growth index, this paper compares and analyses the differences and regional characteristics of China’s total factor productivity, inclusive total factor productivity, green total factor productivity, and inclusive green total factor productivity. We find that total factor productivity is decreasing after considering undesirable output, and the traditional total factor productivity is higher than the inclusive green total factor productivity by 0.112; at the regional level, the trend of the total factor productivity is gradually decreasing from east to west, which indicates that there are regional differences in inclusive green growth of China, and there is room for improvement. Meanwhile, we construct a panel vector autoregressive model (PVAR) and use generalized impulse response function and variance decomposition to analyse the influence of FDI on China’s inclusive green total factor productivity. The results show that FDI is beneficial to the promotion of inclusive green total factor productivity in China, and environmental pollution in the FDI process is an important factor hindering the inclusive green total factor productivity.