The green spillover effects of FDI on domestic firms: the case of the Czech Republic

FDI is an important development source with potential spillover effects. At the same time, FDI can also generate environmental problems for hosting countries. However, none of the existing studies calculate green spillovers which consider the environmental damage and then examine the impact of green spillover effects. The paper calculates the green spillover effects which consider the environmental factor when Foreign Direct Investment (FDI) firms generate the spillover effects. Then, the paper examines the impact of the green spillover effects on the performance of domestic firms in the manufacturing sector in the Czech Republic from 2017 to 2022. The paper uses the fixed effect model to test the impact of the green spillover effect. The green Foreign Direct Investment spillovers include six variables: green competition horizontal, green competition backwards, green competition forward, green labour horizontal, green labour backwards and green labour forward. As a result, the paper detects the positive association of the green labour horizontal effect and the negative association of the green competition horizontal effect and green competition backward linkage with the performance of Czech firms. Interestingly, while the normal spillover effect is positively associated with labour backward linkage, the green spillover effect is not significantly associated with this channel. Finally, the paper also suggests that higher absorptive capacity is associated with weaker negative spillover effects and stronger positive spillover effects from green Foreign Direct Investment.