The Impact of Outward Foreign Direct Investment on Green Technology Innovation: An Analysis of the Moderating Effect of Institutional Distance

Abstract

Emerging markets are boosting global economic growth as globalization accelerates, causing fundamental and unexpected economic changes. Chinese outward foreign direct investment (OFDI) has transformed and upgraded the local economy and the global economy. Simultaneously, the intensifying focus on environmental concerns has underscored the critical importance of green technological innovation (GTI). Recognized as a cornerstone for achieving long-term, balanced economic growth and environmental sustainability, GTI aligns with China's strategic emphasis on sustainable development. Based on the Resource-Based View, OFDI can frequently facilitate technological transfer and diffusion, enhancing the accessibility of sustainable development and advanced green technologies. However, the relationship between OFDI and GTI is not merely linear, it is influenced by the interweaving and regulation of multiple complex factors. Based on institutional theory, institutional distance significantly moderates the relationship between OFDI and GTI, collectively creating a complex network that influences this relationship. The revelation of its internal mechanism cannot be ignored. This study utilizes Zero-Inflated Negative Binomial model to analyses how OFDI affects GTI with 515 listed multinational enterprises from the Shenzhen Stock Exchange database in China from 2012 to 2021. Additionally, empirical study examines how institutional distance moderates this relationship. The results demonstrate that: (1) OFDI has a significant positive influence on GTI; (2) Formal and informal institutional distances moderate the relationship between OFDI and GTI, which limits its progress. Based on these empirical results, several targeted policy recommendations are proposed: (1) continuously optimize the structure of OFDI to simultaneously enhance the quantity and quality of GTI; (2) improve the external institutional environment for investments and leverage the spillover effects of GTI; (3) facilitate collaboration with local institutions, encourage the exchange of knowledge and technology transfer, and mitigate resistance from informal institutions.