Does China’s Outward Direct Investment Improve Green Total Factor Productivity in the ‘Belt and Road’ Countries? Evidence From Dynamic Threshold Panel Model Analysis

Following the “Belt and Road” (B&R) initiative, China has significantly increased its outward direct investment (ODI). Although these investments help to boost these countries’ productivity, their impacts on the environment are still controversial and deserve careful investigation. This study for the first time examines whether China’s ODI has improved the green total factor productivity (GTFP), a comprehensive index for environmental quality and productivity. Moreover, a new data set composed of ICRG, World Bank WDI, Heritage Foundation, and Wind databases is used to match the panel data of 46 B&R countries for the period of 2003–2016. A newly developed dynamic threshold panel model with GMM characteristics is utilized to explore the possible nonlinear relationship with full consideration of heterogeneity. The empirical results indicate that there is no pollution shelter effect on China’s ODI. With the increase in China’s ODI, the GTFP of the B&R countries has been significantly improved. Additionally, China’s ODI has a greater role in promoting GTFP in B&R countries with higher institutional quality. The positive effects of China’s ODI on the GTFP of B&R countries depend on the institutional qualities of the countries, and the enhancement effect becomes greater when the countries have better institutions. There is also evidence that China’s ODI significantly promoted the GTFP of countries in the East Asia and Pacific region, South Asia, Central Asia and Europe, while China’s ODI did not significantly promote the GTFP of countries in the Middle East and North Africa