Digital divide and environmental pressure: A countermeasure on the embodied carbon emissions in FDI

Carbon emission transfer in FDI undermines developing countries' emission reduction targets. This study utilized a firm heterogeneity strategy to illuminate the impact of domestic firms' relative digital technological advances on foreign multinational enterprises' (MNEs) environmental pressure. Based on OECD-AMNE data, KPWW method, this work measures digital technology gap and carbon emission performance gap in firm ownership level across 51 economies from 2005 to 2016. Subsequently, this paper employs multi-dimensional panel regression and moderating effect model to analyze the correlations and mechanisms of digital divide on environmental pressure. Findings indicate that relative digital technological advances for domestic firms through independent innovation and forward digital technology spillover will increase the environmental pressure on foreign MNEs. Host country conditions, such as environmental regulation and GVCs position, as well as investor conditions such as increasing of host market dependence are important mechanisms for relative digital technological advances to exert environmental pressure on foreign MNEs. Therefore, the digitalization and greening of domestic firms to occupy the domestic market share and GVCs upstream position are forcing foreign MNEs to undergo green transformation. Additionally, domestic firms respond to high standards of environmental regulation with digital management, which puts pressure on foreign MNEs for social responsibility.