Relationship between FDI, fiscal expenditure and green total-factor productivity in China: From the perspective of spatial spillover

Abstract

Deeply investigating the relationship between foreign direct investment (FDI), fiscal expenditure and green total-factor productivity (GTFP) is beneficial to formulating effective policies to promote the high-quality development in China. Based on theoretical mechanism analysis, with panel data of China's mainland 30 provinces during 2003-2017, this paper utilizes spatial econometric model to empirically explore the effects of FDI, fiscal expenditure and their interaction item on the growth of GTFP in China. The results show that FDI significantly promote the growth of the local and its neighboring GTFP, and both fiscal expenditure and the interaction between FDI and fiscal expenditure exert significantly negative effects on the growth of GTFP in the local and its neighboring regions. A series of robustness checks and the endogeneity test can ensure the reliability of these results. In addition, great heterogeneity can be found across China's different regions in the relationship between FDI, fiscal expenditure and GTFP. The conclusions suggest that it is necessary to give fully play to the synergy between FDI and fiscal expenditure and formulate regionally targeted policies to improve GTFP and promote high-quality development in China.