Environmental Regulation, Two-Way Foreign Direct Investment, and Green Innovation Efficiency in China’s Manufacturing Industry

Abstract

This paper adopts 2009 to 2015 panel data from 27 manufacturing industries in China. A Super-SBM model is used to measure the green innovation efficiency (GIE) of China’s manufacturing industry. A panel data model is then built to systematically examine the impact of environmental regulation (ER) and two-way foreign direct investment (FDI) on the GIE of China’s manufacturing industry under a unified analysis framework. The results are as follows: (1) the overall level of the green innovation efficiency in China’s manufacturing is low, and there is still great potential for improvement. Considering industry heterogeneity, the green innovation efficiency of patent-intensive manufacturing is significantly higher than that of non-patent-intensive manufacturing; (2) in terms of the whole manufacturing industry, ER and the interaction between ER and outward foreign direct investment (OFDI) have significantly negative effects on GIE, OFDI has significantly positive effects on GIE. (3) when considering industry heterogeneity, for patent-intensive manufacturing, ER and the interaction between ER and inward foreign direct investment (IFDI) have significantly negative effects on GIE, while IFDI has significantly positive effect on GIE. For non-patent-intensive manufacturing, ER and the interaction between ER and OFDI have significantly negative effects on GIE, while IFDI and the interaction between ER and IFDI have significantly positive effects on GIE.