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China is currently in a crucial phase of establishing a new domestic and international “dual circulation”, and a new model of sustainable development. OFDI and environmental investment play significant roles in both external and internal economic cycles. In this study, we constructed a multi-period difference-in-differences (DID) model, using data from listed companies in China from 2008 to 2022, to analyze how OFDI impacts domestic environmental investment and its underlying mechanism. The findings demonstrated that OFDI can significantly reduce the environmental investment made by domestic enterprises. There exists a capital competition relationship between these two activities due to financing constraints, although OFDI can mitigate environmental issues by reducing pollution emissions and promoting industrial structure upgrading within the home country, resulting in savings on environmental investments. Heterogeneity analysis revealed that the negative impact of OFDI on environmental investment is primarily observed in non-state-owned enterprises, firms investing in developed countries, and those subject to strict environmental requirements imposed by host governments. This study explains the internal logic of China’s environmental investment reduction from the perspective of OFDI, deepens the study of the environmental consequences of OFDI, broadens the applicable boundaries of the theory of OFDI’s impact on environmental investment, and provides insights for the government to establish a high-level opening-up pattern and address the dilemma of environmental governance.
Xue et al. (Thu,) studied this question.