The Impact of Low-carbon City Pilot Policy on Outflow of Corporate FDI in China: An Empirical Assessment

Abstract

To investigate the impact of China's low-carbon city pilot (LCCP) policy on corporate Outward Foreign Direct Investment (OFDI), aiming to understand its role in promoting international expansion and industrial upgrading amidst a global low-carbon transition. This study employs a multi-period Difference-in-Differences (DID) model to analyze panel data from Chinese A-share listed companies from 2007 to 2023. The model is used to quantitatively assess the policy's direct impact, transmission mechanisms, and heterogeneous effects on corporate OFDI. The research reveals that the LCCP policy significantly promotes corporate OFDI. This promotional effect is more pronounced for firms located in large, central, and key environmental protection cities. Furthermore, green innovation and digital transformation are identified as crucial mediating pathways through which the policy influences OFDI decisions. Based on the findings, it is recommended that the government should strengthen policy support through special funds and tax incentives to lower corporate transition costs. In parallel, firms should proactively increase R&D investment and accelerate digital upgrades to fully leverage the opportunities presented by the low-carbon strategy.