Abstract
China’s Going Global Strategy and Belt and Road Initiative gained great attention among scholars. Moreover, it is believed that Chinese investments abroad cause serious social and environmental externalities. Hence, in this paper, we examine how China’s foreign direct investments influence the carbon emissions of 35 Belt and Road Initiative countries from 2000 to 2019. To do so, we use a panel model that accounts for heterogeneity and country cross-section dependence. Our results show that while other countries’ foreign direct investments have contributed to the deterioration of the environment in these countries, Chinese investments have not. This substantiates the hypothesis of the halo effect influence of China’s foreign investments as opposed to other countries’ investments which may seek a haven for its carbon emissions. These results highlight the importance of source and destination regulations of foreign direct investments in terms of their environmental impact and carbon emissions in the Belt and Road Initiative countries. It also provides a fresh finding on the efficacy of China’s foreign investment management policies and regulations in producing the desired environmental outcome in hosting countries.
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Data availability
All the data and tools/models used for this work are publicly available.
Notes
The Built and Road Initiative is China’s expansive connectivity vision. It aims to connect countries in order to establish the modern silk road and enhance trade and economic relations.
We refer to China’s foreign direct investment globally as OFDI. China’s global investments is composed of FDI equity investment and construction projects. Between 2005 and 2019, China invested US$ 815.3 billion worth of in construction projects and US$ 1.23 trillion in FDI equity investments.
Buckley et al. (2007) has reported that China invests in countries with lax environmental regulations and extensive natural resources. Other issues raised regarding China’s foreign investments are poor performance, state support, and, most recently, a co-operative mechanism of destruction under the BRI economic vision.
The BRI regions include 60 countries with a total population of over 4 billion people and a sizable fraction of the world’s output and trade. These countries control around 65% of land-based road trade as well as 30% of maritime trade (Swaine 2015). In these countries, China follows a policy of co-construction, cooperation, and sharing. It also has a continuously growing investment that strengthens its economic ties with these places. The BRI was proposed in 2013, and it gradually changed from a concept, initiative, and vision to consensus and action.
There is also He (2006) on China, Seker et al. (2015) on Turkey, Shahbaz et al. 2019b) on MENA countries, Solarin et al. (2017) on Ghana, Paramati et al. (2016) on 20 emerging economies, Shahbaz et al. (2014) on Middle Eastern countries, Abdouli and Hammami (2017) on MENA countries, and Shahbaz et al. (2015) on high-, middle-, and low-income countries.
The developed host countries impose environmental regulations on FDI and this may also explain the obtained results.
One of the first action plans in response to the climate change was the Framework Convention on Climate Change, initiated in Kyoto (Japan) on December 11, 1997. It led to the commitment of the implementation of the Kyoto Protocol in 1997 (UN 2013). This came into force on February 16, 2005. Since then, various other international agreements have been finalized, which are all focusing on reducing CO2 emissions.
On the econometric influence of assuming homogeneity in panels, see Breitung (2005).
In this paper, we have also estimated the AMG model in order to ensure valid inference. More details on these techniques can be found in Pesaran and Yamagata (2008).
Countries with missing data are excluded from the sample.
This point has been brought to our attention by the anonymous referee; we thank him for such comment.
In the AMG model, the coefficient that measures the influence of China’s foreign investment on emissions is significant and it is estimated at −0.061. This implies that one standard deviation increase in China’s foreign investment would reduce CO2 emissions by around −7.2%. It is computed as −0.072 = −0.061×3.635×100/3.
This particularly applies in developed countries where there are many regulations that aim to protect the environment.
Chinese overseas investments in the BRI economies have raised environmental concerns. These are mainly the investment projects in ecologically sensitive areas such as arid regions, biodiversity hotspots, and protected areas (See Tracy et al. 2017). Many of these BRI projects are stopped: For instance, the Myitsone dam project in Myanmar in 2011, and the new Hong Kong project in Sri Lanka in 2014 were both cancelled.
The going abroad strategy of China defines rules for investments: investment in advanced technology and equipment; a long-term supply of raw materials; generation of foreign currency; ad exports to China’s machinery, labor, service, material, and engineering; and survive the home-country domestic market.
The risk management initiative at the global level has been cooperatively launched by the Green Finance Committee, the Investment Association of China, the China Banking Association, the Asset Management Association of China, the Insurance Asset Management Association of China, the China Trustee Association, and the Foreign Economic Cooperation Office of the Ministry of Environment Protection.
Specifically, in line with our previous findings, the results show that COFDI, REC, and TR influence on emissions is favorable while the effect of NCFDI is positive. All parameters are significant at the 1% level.
This important point has been brought to our attention by the anonymous referee; we thank him for such comment.
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Riazullah Shinwari: conceptualization, methodology, formal analysis, data curation, writing- original draft preparation. Yangjie Wang: visualization, supervision. Aktham Maghyereh: writing - review & editing, visualization, formal analysis. Basel Awartani: writing- reviewing and editing.
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Shinwari, R., Wang, Y., Maghyereh, A. et al. Does Chinese foreign direct investment harm CO2 emissions in the Belt and Road Economies. Environ Sci Pollut Res 29, 39528–39544 (2022). https://doi.org/10.1007/s11356-021-18357-7
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DOI: https://doi.org/10.1007/s11356-021-18357-7