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Climate Policy and Foreign Direct Investment: Evidence from a Quasi-Experiment in Chinese Cities

Author

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  • Lin Ni

    (School of Business, Applied Technology College of Soochow University, Kunshan 215325, China)

  • Lei Li

    (School of Business, Applied Technology College of Soochow University, Kunshan 215325, China)

  • Xin Zhang

    (School of Business, Applied Technology College of Soochow University, Kunshan 215325, China)

  • Huwei Wen

    (School of Economics and Management, Nanchang University, Nanchang 330031, China)

Abstract

International investment is sensitive to environmental policies, and developing countries are worried about the withdrawal of foreign capital when adopting climate policies. This study treats the pilot policy of low-carbon cities as a quasi-experiment and uses urban panel data from 2006 to 2019 to investigate how climate policy affects foreign direct investment (FDI). Results show that climate policy has significantly reduced the FDI in Chinese cities but has promoted the quality of FDI. The regulatory pressure and innovation incentives brought about by climate policy change the quantity and quality of FDI in cities. Climate policy mainly reduces FDI in large cities and improves the quality of FDI in small cities. Moreover, the quality of FDI in capital outflow cities decreases, whereas that in capital inflow cities increases, thereby suggesting a potential transfer of FDI from large to small cities. In addition, the climate policy in innovative cities improves the quantity and quality of FDI but has a negative impact on FDI in non-innovative cities.

Suggested Citation

  • Lin Ni & Lei Li & Xin Zhang & Huwei Wen, 2022. "Climate Policy and Foreign Direct Investment: Evidence from a Quasi-Experiment in Chinese Cities," Sustainability, MDPI, vol. 14(24), pages 1-19, December.
    • Handle: RePEc:gam:jsusta:v:14:y:2022:i:24:p:16469-:d:997979
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    3. Xianghua Yue & Shikuan Zhao & Xin Ding & Long Xin, 2022. "How the Pilot Low-Carbon City Policy Promotes Urban Green Innovation: Based on Temporal-Spatial Dual Perspectives," IJERPH, MDPI, vol. 20(1), pages 1-20, December.
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