Outward foreign direct investment, green financial development, and green total factor productivity: evidence from China

Prevailing research suggests reverse green technology spillovers from outward foreign direct investment (OFDI) significantly impact the green total factor productivity (GTFP) of the home country. However, the contribution of OFDI may depend on the home country’s absorptive capacity. Based on panel data of 30 provinces in China from 2005 to 2019, this study constructs a generalized method of moments (GMM) model and a dynamic threshold panel model to empirically investigate how green financial development influences the impact of OFDI on the GTFP of the home country. We found that green financial development plays a positive moderating role in the impact of OFDI on GTFP in home country. The results also show the impact of OFDI on GTFP has a significant single-threshold effect on green financial development. Only when green financial development reaches a certain level can OFDI significantly promote GTFP of the home country. Moreover, regional heterogeneity exists in the moderating effect of green financial development. Given the ongoing growth of China’s OFDI, it is vital to decide on a proper green financial development policy to improve the reverse spillover effect of OFDI firms on the nation’s GTFP. The empirical analysis suggests that policymakers should build a multilevel green financial system to allocate financial resources and maximize the reverse spillover effect of OFDI.