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Responses of China's cross-border investors to domestic environmental regulations

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  • Lin, Kang
  • Tian, Kailan
  • Gao, Xiang
  • Zhao, Yu
  • Yang, Cuihong

Abstract

Environmental regulations have been widely imposed to foster the development of a green and sustainable economy. However, how cross-border investors respond to domestic environmental regulations (DERs) has not been well studied. This paper examines how firms respond to DERs by focusing on the effects on outward direct investment (ODI) and productivity, using the data of Chinese listed companies during 2012–2018. The regression results support that DERs significantly boost ODI through encouraging firms to transfer production to countries with less stringent environmental regulations, acquiring advanced technologies from developed economies, and increasing research and development (R&D) expenditures. The latter two responses also contribute significantly to firms' productivity improvement while the first cannot. We conduct a series of heterogeneity analyses and find that firms with high financing constraints, non-state-owned firms and high-polluting firms facing stringent DERs tend to opt for the first response. Our study sheds light on how Chinese firms navigate DERs and the diverse strategies they employ to respond to these regulatory pressures.

Suggested Citation

  • Lin, Kang & Tian, Kailan & Gao, Xiang & Zhao, Yu & Yang, Cuihong, 2024. "Responses of China's cross-border investors to domestic environmental regulations," Energy Economics, Elsevier, vol. 131(C).
    • Handle: RePEc:eee:eneeco:v:131:y:2024:i:c:s0140988324000793
    DOI: 10.1016/j.eneco.2024.107371
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