Carbon emissions and the rising effect of foreign direct investment and trade openness: Evidence from panel data countries

[Purpose] The study aims to investigate the effect of FDI and FTO on carbon emissions using sectoral data from 30 industries in China from 2001 to 2024. It will document both the positive and negative influences of FDI and FTO on carbon emissions, presenting a fresh perspective on these economic factors and their relation to environmental sustainability. [Design/methodology/approach] The research employed a rigorous threshold regression model to explore the relationship between FDI+FTO and carbon emission. Panel data of industries in China was meticulously analyzed, indicating the changes in sectors and the impacts of controlled variables. This comprehensive approach ensures the validity and reliability of our findings. [Findings] The empirical results confirm that FDI and FTO affect sectoral carbon emissions nonlinearly. FDI suppresses carbon dioxide emissions when lower emission threshold values are considered, while FDI at higher thresholds increases them. Similarly, as FTO reduces carbon emissions in high-intensity sectors, carbon emissions increase in low-intensity ones. The control variables concerning carbon emissions are also explained. [Practical implications] Policy initiatives based on the peculiar features of each variable would promote FDI in industries with low emissions and regulate FTO in sectors with high carbon intensity. This would balance economic growth with environmental sustainability. [Originality/value] The paper contributes to the extant literature by analyzing the relationship between FDI, FTO, and carbon emissions within a sector-specific threshold regression analysis framework. It illustrates the complex dynamics of international trade and investment in environmental outcomes.