What Explains the Greening of China's Energy ODI? The Role of Environmental Regulation, Endowments and Financial Factors

Xu, Mohan and Tang, Yao (2025): What Explains the Greening of China's Energy ODI? The Role of Environmental Regulation, Endowments and Financial Factors.

Abstract

In the current study, we document a steady rise in the share of renewable energy projects in China's outward direct investment (ODI) in the energy sector. We examine the driving forces and find that both host country's environmental regulation and financial factors has generated different or even opposite effects on China's ODI in fossil fuels and renewable energy. Specifically, China's ODI in fossil fuels is positively correlated with endowments in fossil fuels, electricity consumption, low financing costs, and high exchange rate volatility. In comparison, ODI in renewable energy is more likely to occur in host countries with stricter environmental regulation and less likely to be impeded by tighter monetary policy. The results suggest that the combination of regulatory policies and financing conditions can have an important influence in the global transition to renewable energy.

• Item Type: MPRA Paper
• Language: English
• Keywords: direct investment, fossil fuels, renewable energy, environmental regulation, monetary policy, exchange rate volatility
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q40 - General

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