Foreign Direct Investment and Climate Change Risks: A Panel Data Study of China’s OBOR Initiative

The ‘One Belt, One Road’ (OBOR) concept signifies a substantial endeavour to establish a global community founded on common interests. Many OBOR member nations are especially susceptible to the effects of climate change. This has elicited apprehensions, particularly among Western nations, that OBOR-related infrastructure initiatives may heighten these countries’ susceptibility to climate hazards. This study examines the impact of Chinese foreign direct investment (CFDI) on climate change risks in nations participating in the OBOR initiative, emphasizing the underlying mechanisms. The research analyses panel data from 65 partner countries between 2004 and 2020 to investigate the impact of CFDI on the ability of host nations to address climate concerns, focusing on their respective vulnerabilities. Principal discoveries encompass CFDI in OBOR regions, which seems to enhance the climate resilience of partner nations by diminishing their susceptibility to climate change. The advantages of Chinese investments are especially apparent in nations with low to medium incomes, those geographically proximate to China, and those possessing free trade agreements (FTAs) with China. Consistent with OBOR’s guiding idea of collective development and global governance, these beneficial effects can be partially ascribed to income augmentation and enhanced political stability. This research indicates that despite concerns regarding ‘carbon emissions transfer’ associated with OBOR investments, such investments have generally mitigated climate vulnerability without a significant widespread rise in local carbon emissions, although project-specific variations may occur. The report concludes with policy proposals aimed at improving the long-term sustainability and efficacy of OBOR investments in fostering climate resilience.