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Outward foreign direct investment and energy efficiency: firm-level evidence from China

Published online by Cambridge University Press:  11 February 2025

Xi Lin ,
Xinheng Liu  and
Ling-Yun He Open the ORCID record for Ling-Yun He [Opens in a new window]
Xi Lin
Affiliation:
School of Economics and Statistics, Guangzhou University, Guangzhou, China
Xinheng Liu
Affiliation:
Business School, Guilin University of Technology, Guilin, China
Ling-Yun He*
Affiliation:
School of Economics, Jinan University, Guangzhou, China
*
*Corresponding author: Ling-Yun He; E-mail: lyhe@amss.ac.cn
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Abstract

Energy inefficiency and environmental damages caused by this inefficiency are increasingly common in developing countries. As the largest developing country, China is experiencing a rapid growth in outward foreign direct investment (OFDI). Do OFDI firms have higher energy efficiency in the same sector? After OFDI, how does the energy efficiency of the firms change? In this study, we employ the data from Chinese industrial firms to empirically investigate these questions. Our results show that OFDI firms have higher energy efficiency and total factor energy efficiency (TFEE) relative to non-OFDI firms in the same sector. After OFDI, firms improve energy efficiency and TFEE through expanding output scale. In addition, these effects are found to be heterogeneous in terms of energy types as well as OFDI motivations and destinations. In general, this study provides some initial evidence for the relationship between OFDI and energy performance at the firm level.

Keywords

energy efficiencyheterogeneous firmsoutward foreign direct investment (OFDI)total factor energy efficiency (TFEE)

JEL classification

O13: Agriculture • Natural Resources • Energy • Environment • Other Primary Products Q56: Environment and Development • Environment and Trade • Sustainability • Environmental Accounts and Accounting • Environmental Equity • Population Growth F21: International Investment • Long-Term Capital Movements
Type
Research Article
Information
Environment and Development Economics , First View , pp. 1 - 26
Copyright
Copyright © The Author(s), 2025. Published by Cambridge University Press

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