Outward foreign direct investment and energy efficiency: firm-level evidence from China

Abstract Energy inefficiency and environmental damages caused by this inefficiency are increasingly common in developing countries. As the largest developing country, China is experiencing a rapid growth in outward foreign direct investment (OFDI). Do OFDI firms have higher energy efficiency in the same sector? After OFDI, how does the energy efficiency of the firms change? In this study, we employ the data from Chinese industrial firms to empirically investigate these questions. Our results show that OFDI firms have higher energy efficiency and total factor energy efficiency (TFEE) relative to non-OFDI firms in the same sector. After OFDI, firms improve energy efficiency and TFEE through expanding output scale. In addition, these effects are found to be heterogeneous in terms of energy types as well as OFDI motivations and destinations. In general, this study provides some initial evidence for the relationship between OFDI and energy performance at the firm level.