Structural breakpoints in the relationship between outward foreign direct investment and green innovation: An empirical study in China

Abstract This study introduced panel threshold regression models to examine the effects of outward foreign direct investment (OFDI) on green innovation from the home country's perspective. Using a developed framework, the OFDI-green innovation relationship was decomposed into three components: the scale effect, composition effect, and technique effect. Panel data for 29 Chinese provinces from 2007 to 2016 were used in the empirical research. The study explored the impact of OFDI through each decomposed component, the presence of structural breakpoints, and variations from the perspective of regional heterogeneity. We found one structural breakpoint in the OFDI scale effect and technique effect, and two structural breakpoints in the composition effect. The impact levels of the OFDI scale and the composition effect increased once the structural breakpoint was exceeded. The impact of the OFDI technique effect decreased after the structural breakpoint was exceeded. At the sub-regional level, the analysis found that only the OFDI technique effect had one structural breakpoint and positively impacted green innovation in the eastern provinces. In the mid-western provinces, all three OFDI effects positively impacted green innovation. The paper also discussed the implications of the findings on China's future development.