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Liu, L.; Zhou, H.; Xie, J. Outward Foreign Direct Investment on Green Innovation Heterogeneity. Encyclopedia. Available online: https://encyclopedia.pub/entry/44771 (accessed on 05 July 2024).
Liu L, Zhou H, Xie J. Outward Foreign Direct Investment on Green Innovation Heterogeneity. Encyclopedia. Available at: https://encyclopedia.pub/entry/44771. Accessed July 05, 2024.
Liu, Luhao, Honglin Zhou, Jiaping Xie. "Outward Foreign Direct Investment on Green Innovation Heterogeneity" Encyclopedia, https://encyclopedia.pub/entry/44771 (accessed July 05, 2024).
Liu, L., Zhou, H., & Xie, J. (2023, May 24). Outward Foreign Direct Investment on Green Innovation Heterogeneity. In Encyclopedia. https://encyclopedia.pub/entry/44771
Liu, Luhao, et al. "Outward Foreign Direct Investment on Green Innovation Heterogeneity." Encyclopedia. Web. 24 May, 2023.
Outward Foreign Direct Investment on Green Innovation Heterogeneity
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This entry is adapted from the peer-reviewed paper 10.3390/su15097341

In the current era of increasingly frequent international exchanges and countries’ increasing emphasis on green development, exploring the complex relationship between outward foreign direct investment (OFDI) and green innovation has become an important research topic. Taking the binary innovation perspective as an entry point, this research is devoted to exploring the heterogeneous impact and dynamic evolution of OFDI on green innovation since China’s accession to the WTO.

outward foreign direct investment (OFDI) green innovation binary innovation

1. Introduction

The year 2020 witnessed the introduction of the goal of “carbon peaking and carbon neutrality” in China and the 20th Party Congress’ determination of the development direction of “accelerating the green transformation of the development mode and promoting the harmonious coexistence of man and nature”. These make it particularly important to continuously enhance the green innovation capability and build a green innovation system to drive the development of sustainable economic growth. At present, many scholars at home and abroad have discussed how to accelerate green innovation from different perspectives, and one important research area is the impact of OFDI on green innovation. Whether it is the expanding scale of OFDI in China or the concept that OFDI should promote green technology innovation and develop new kinetic energy for a green economy as clearly pointed out in the Guidelines on Green Development of Foreign Investment Cooperation issued by the Chinese government in 2021, it suggests that researchers should continue to explore the impact of OFDI on green innovation in China from both academic research and management practice levels, and continue to better explore the impact of OFDI on green innovation in the new era based on the concept of green development. In the new era, researchers should continue to better promote the “going out” of domestic capital based on the concept of green development.
The existing literature mainly focused on the mechanism of the role of OFDI on green innovation and the effect of OFDI on green innovation in different situations, such as environmental regulation [1][2], financial development [3], investment scope [4], the institutional environment [5], intellectual property protection [6], and innovation value chains [7], and based on this, “promotion theory”, “inhibition theory”, and “non-linear theory” [8] have been developed. However, the studies mostly start from the overall performance of green innovation, and pay less attention to the heterogeneous characteristics of green innovation in both innovation modes and development stages, which is presumed to be an important reason that the previous literature has not formed more consistent conclusions. For example, the mechanism and effect of OFDI on green exploration innovation and green exploitation innovation may be different under the binary innovation model. In addition, China has experienced a continuous development of the economic situation at home and abroad since its accession to the WTO in 2001. Domestic green innovation has also shown dynamic evolutionary characteristics. At different stages of development, there are also different effects of OFDI on green innovation and even green binary innovation. Obviously, the above situation is a question that has still not been addressed or answered in previous studies. If these questions can be correctly addressed and answered, researchers will have a clearer understanding of how OFDI affects green innovation; at the same time, this will also be of positive significance to help China better promote the “going out” of capital and improve the level of domestic green innovation from a practical perspective, thus promoting the realization of green development.

2. Outward Foreign Direct Investment on Green Innovation Heterogeneity

Green innovation, i.e., innovation consisting of new or improved products, processes, services, and management, can both add value to a firm and significantly reduce the negative impact on the environment [9]. Compared to traditional innovation, which has economic performance as its main objective, it can be found that green innovation places more emphasis on the adoption of new technologies and ideas to achieve efficient use of resources and effective reduction in pollution, and to obtain the corresponding economic performance under these premises. There are many factors that influence green innovation in a country, among which the acquisition of new products, technologies, and models from abroad through OFDI is an important way to improve the level of green innovation in the country. At present, there are basically three types of studies on the relationship between OFDI and green innovation. The first is the “promotion theory”, because some scholars believe that OFDI can promote the improvement of China’s green innovation level, and its mechanism of action mainly works through two channels: the technology spillover effect [10] and the industrial structure optimization effect [11]; the second is “inhibition theory”, because some scholars argue that OFDI does not positively promote the level of green innovation in China, and its data test finds that OFDI has a crowding-out effect on domestic investment [12][13], and the characteristic portion of OFDI used for technology seeking is relatively small. The third is the “non-linear theory”, which comes from the view of some scholars that the impact of OFDI on green innovation may be “non-linear”. It is believed that innovation itself is a complex system that covers different innovation segments and cannot be measured by a single indicator that cuts across all segments. In addition, some scholars explored green innovation in stages based on innovation value chain theory, and found that OFDI has heterogeneous effects on green innovation in different innovation stages [7][14].
Binary innovation refers to the division of innovation activities into exploratory innovation and exploitative innovation [15], where the former refers to the development and integration of new knowledge and technology to meet new customers or emerging market needs based on the development of new products and services, while the latter refers to the optimization of existing products or services by firms through mining, refining, integrating, and improving existing knowledge and technology to meet existing [16]. A comparison of the two reveals that exploratory innovation is a large-scale, more radical innovation behavior, while exploitative innovation is a small-scale, incremental innovation behavior [15]. Even so, the two are not mutually exclusive or incompatible, and it is necessary to emphasize the balanced development of exploratory and exploitative innovation in the innovation process. The impact of OFDI on binary innovation has been studied by scholars from different perspectives. According to some scholars, there are essential differences between the home and host country binary networks in which OFDI is located. Under different network characteristics, if the home country has stronger business network relations, then the development of exploitative innovation will be more favorable [17]. However, a stable business posture for a long time may also cause firms to form inertia and hinder exploratory innovation [18]; business network relationships in the host country, on the contrary, can lead to the complexity of inter-firm relationships by providing more heterogeneous resources as well. While this favors firms undertaking exploratory innovation, it discourages exploitative innovation [19], where the impact of OFDI on binary innovation is mainly realized through the competition effect, the human capital flow effect, and the model imitation effect. Additionally, some scholars examined the dynamic evolutionary domain of OFDI affecting binary innovation. The firm life cycle has different effects when it is at different stages, specifically, the firm size, profitability, and resource redundancy are reflected in the growth, maturity, and decline stages of the firm. Therefore, OFDI has different effects on the promotion of binary innovation and binary interaction [20]; moreover, the passage of time highlights the phenomenon that OFDI has a sustainable effect on exploratory innovation represented by invention patents, while it has a smaller and less sustainable effect on exploitative innovation represented by utility models and design patents [21].

References

  1. Yang, S.; Han, X. A study on the heterogeneous dynamic association between two-way FDI and domestic green innovation—A moderating analysis based on environmental regulation. Soft Sci. 2021, 35, 8–13.
  2. Dai, L.; Mu, X.; Lee, C.C.; Liu, W. The impact of outward foreign direct investment on green innovation: The threshold effect of environmental regulation Environ. Sci. Pollut. Res. 2021, 28, 34868–34884.
  3. Zhang, Z.; Sun, L. Does financial development enhance the efficiency of green innovation in OFDI? J. Southwest Minzu Univ. Nat. Sci. Ed. 2022, 43, 124–134.
  4. Lun, X.; Han, Y. Does China’s OFDI contribute to green technology innovation in the countries along the route—A test based on data from countries along the “Belt and Road Initiative”. Sci. Technol. Prog. Policy 2022, 39, 39–48.
  5. Khan, M.A.; Ali, S.T.; Yang, Z.; Ali, F.; Sarwar, Z. Outward foreign direct investment and corporate green innovation: An institutional pressure perspective. S. Afr. J. Bus. Manag. 2020, 51, 1–12.
  6. Yang, S.; Liu, Y. Can Chinese OFDI enhance the efficiency of regional green innovation based on the perspective of intellectual property protection. Int. Econ. Trade Res. 2021, 37, 83–98.
  7. Nie, M.; Qi, H. Can outward foreign direct investment enhance the efficiency of green innovation in Chinese industry?—A perspective based on innovation value chain and spatial linkages. World Econ. Study 2019, 2, 111–122+137.
  8. Han, X.; Li, B.; Liu, J. A study on the heterogeneous dynamic effects of reverse green innovation despite OFDI in China. Sci. Res. Manag. 2020, 41, 32–42.
  9. Hojnik, J.; Ruzzier, M. The driving forces of process eco-innovation and its impact on performance: Insights from Slovenia. J. Clean. Prod. 2016, 133, 812–825.
  10. Yang, C.; Zhang, G.; Bi, K. Study on the impact of foreign direct investment on the evolution of green innovation paths in industrial enterprises. Soft Sci. 2019, 33, 63–69+93.
  11. Gong, X.; Li, M.; Zhang, H. Does OFDI enhance the efficiency of industrial green innovation in China—An empirical study based on agglomeration economy effect. J. Int. Trade 2017, 12, 127–137.
  12. Song, W.; Du, H. Autonomous R and D, technology spillover and green technology innovation in China. Res. Financ. Econ. Issues 2017, 8, 98–105.
  13. Luo, L.; Liang, S. Spatial effects of international R and D capital technology spillover on green innovation efficiency in China. Econ. Manag. 2017, 39, 21–33.
  14. Yang, S.; Liu, Y. Study on the spillover effect of reverse green innovation value chain of Chinese outward foreign direct investment. J. Dalian Univ. Technol. Soc. Sci. Ed. 2020, 41, 57–66.
  15. James, G.M. Exploration and Exploitation in Organizational Learning. Organ. Sci. 1991, 2, 71–87.
  16. Mary, J.B.; Michael, L.T. Exploitation, Exploration, and Process Management: The Productivity Dilemma Revisited. Acad. Manag. Rev. 2003, 28, 238–256.
  17. Peng, M.W.; Luo, Y. Managerial ties and organizational performance in a transition economy: The nature of a micro-macro link. Acad. Manag. J. 2000, 43, 486–501.
  18. Tan, Y.; Ma, Y. Dual networks and dual innovation in OFDI firms: Moderating effects of cross-border search. Sci. Res. Manag. 2020, 41, 170–177.
  19. Mouri, N.; Sarkar, M.B.; Frye, M. Alliance portfolios and shareholder value in post-IPO firms: The moderating roles of portfolio structure and firm—Level uncertainty. J. Bus. Ventur. 2012, 27, 355–371.
  20. Zhao, T.; Wang, Q. Analysis on the promotion effect of OFDI on dual innovation of Chinese manufacturing firms—An empirical study based on different life cycles. Sci. Technol. Econ. 2019, 32, 26–30.
  21. Ming, X.; Yan, H.; Xian, G. The Linder hypothesis of OFDI in China: A binary margin-based perspective. World Econ. Study 2019, 1, 70–80+136.
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Subjects: Economics
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Luhao Liu
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Honglin Zhou
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Update Date: 25 May 2023
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