China carbon neutrality target: Revisiting FDI-trade-innovation nexus with carbon emissions.

Abstract

Since the Paris Agreement, countries around the globe have been striving to achieve their carbon neutrality targets. However, because China has one of the largest economies in the world, to achieve its targeted carbon neutrality, the roles of foreign direct investment (FDI), technological innovation (TI), and trade are crucial. Therefore, this study aims to introduce the level of trade, renewable energy consumption (REC), and FDI from the years 1995-2017 as new determinants in promoting a sustainable environment in China. The study employs advanced panel methods based on slope homogeneity and a cross-sectional dependence test. The results confirm a cointegration relationship for all models in this study, suggesting that gross domestic product and FDI positively affect carbon emissions. By contrast, foreign trade, REC, and TI are inversely associated with carbon emissions. Moreover, according to Chinese provincial data, the joint term for FDI with REC and TI is negatively associated with carbon emissions. The policy implications of this study suggest that to achieve sustainable FDI, TI should be encouraged to mitigate the pollution caused by FDI. There is a dire need to implement green practices and eco-friendly policies at a national scale.