Outward foreign direct investment and pollution: Evidence from China

Abstract

This paper examines the impact of outward foreign direct investment (OFDI) on domestic pollution using novel firm-level data that integrates production, pollution, and ODFI information. The results indicate that ODFI significantly contributes to pollution reduction, a finding that remains robust across various alternative tests. Further analysis reveals significant heterogeneity across industries and ownership types, suggesting that the effect of ODFI on pollution varies depending on the industry and ownership structure. To explore the underlying mechanisms, this study employs an intermediation effect model, which reveals that the export intensity channel is the primary driver of pollution reduction facilitated by ODFI. The policy implication is that encouraging productive firms to engage in ODFI activities can effectively support pollution reduction efforts through spillover effects.