Environmental Regulation Effect on Green Total Factor Productivity: Mediating Role of Foreign Direct Investment Quantity and Quality

Abstract

Green total factor productivity (GTFP) is an excellent index for green development. The objective of this study was to check whether environmental regulation (ER) can affect GTFP through the mediating role of foreign direct investment (FDI) quantity and quality. Using the super-efficiency Epsilon-based measure (EBM) model and a Malmquist–Luenberger (ML) index, China’s GTFP growth was measured during 1998–2018. On this basis, we adopted a Systematic Generalized Method of Moments (SYS-GMM) to analyze the effect of ER on GTFP. The findings show that China’s GTFP declined first and rose again during the sample period. GTFP in the coastland was greater than that in the inland region. ER positively affected China’s GTFP growth. FDI quantity and quality mediated the nexus between ER and GTFP growth in the whole nation. Specifically, this mediation role of FDI quantity and quality was only significant in coastal China. Additionally, financial development can also boost GTFP growth in China. Given the importance of developing a green economy, the government should improve the FDI quality and attract green FDI.