Balance Between Development and Environment: China's Greenfield Investment, Environmental Regulation and Host Countries' Green Development

ABSTRACT The recent surge in outward foreign direct investment (OFDI) from developing countries has sparked concerns that inadequate environmental regulations in these nations could result in adverse environmental impacts on host countries through such investments. Focusing on the typical representative of developing countries' OFDI, this study explores the impact of China's greenfield investment on green total factor productivity (GTFP) in host countries, and analyzes the moderating effect of environmental regulations on greenfield investment according to the theory of Directed Technical Change. The results indicate that China's greenfield investment significantly boosts the host countries' GTFP, balancing the relationship between economic development and environmental pollution. Mechanism analysis shows that China's greenfield investment promotes GTFP via industrial structure optimization and technological spillover effect. The former is significant at lower percentiles, while the latter only shows a learning effect without forming an overall demonstration effect to drive endogenous innovation. Compared with host countries' independent environmental regulation, relative environmental regulation presents more effective moderating effects. Heterogeneity tests confirm better moderating roles in medium intensity and developing host countries. This study offers valuable insights into how to better promote the green development impact of investments from developing countries.