Carbon policy and firms’ OFDI in the digital era: Insights from China

ObjectiveCreating a low-carbon economy has become an essential goal in fostering green development. In the context of achieving sustainability, in 2014, China implemented a carbon emission trading system (ETS) to conserve energy and reduce emissions. This study examined the effect of the carbon ETS on the outward foreign direct investment (OFDI) of Chinese listed firms.MethodsThis study employed a difference-in-differences approach using the data of Chinese listed firms from 2010 to 2017. The data were sourced from the CSMAR database. Firms located in the trial areas of the carbon ETS were considered the treatment group.ResultsThe carbon ETS had a significant positive impact on firms' OFDI, even after several robustness checks. The carbon ETS positively influenced the OFDI of private firms, firms not belonging to polluting industries, and highly profitable firms but not the OFDI of state-owned firms, firms belonging to polluting industries, and less profitable firms. Technological innovation mediated the impact of the carbon ETS on firms' OFDI but increased production costs did not. Digitalization enhanced the positive effects of the carbon ETS on firms' OFDI.ConclusionThe results present vital implications for deepening two-way investments across economies in the era of digitalization. Developing governments should actively promote carbon emission trading policies and digitalization to help enterprises realize green transformation and improve their competitiveness in "going global."