The potential for China's outward foreign direct investment and its determinants: A comparative study of carbon-intensive and non-carbon-intensive sectors along the Belt and Road

Abstract

Ensuring that the Belt and Road Initiative (BRI) is green and low-carbon is crucial to tackling climate change while simultaneously promoting a win-win outcome of BRI countries. In recent years, China has altered its BRI Foreign Direct Investment (FDI) portfolio by reducing investment in carbon-intensive sectors and increasing it in non-carbon-intensive sectors. Therefore, it is particularly important to assess the potential of these two types of sectors in attracting China's FDI, and to identify the major determinants of investment. In our study, the results of a stochastic frontier gravity model and inefficiency model on 2008-2017 data covering 132 countries, including 98 BRI countries, show that the potential for China's FDI in non-carbon-intensive sectors is higher than that in carbon-intensive sectors. Furthermore, the determinants of China's FDI in these two types of sectors are significantly different. The study's results can be used to inform China's investment policy, and render positive contributions to the green BRI based on location and sector information.

Keywords: Belt and road initiative; Carbon intensity; FDI potential; Stochastic frontier analysis.