Research on the nonlinear dynamic relationship between FDI and CO2 emissions in the “One Belt, One Road” countries

This study examines the relationship between FDI and CO2 emissions in a nonlinear framework using data from countries along the “One Belt, One Road” from 1979 to 2017 as the sample. First, the linear analysis method was used to examine the stability of FDI and CO2 emissions in countries along the “One Belt, One Road.” In addition, the BDS (Brock-Dechert-Scheinkman test) method and nonlinear Granger causality test are used to investigate the nonlinear relationship between variables. Finally, a threshold vector autoregressive model (TVAR) is used to analyze the dynamic change mechanism between China’s FDI and CO2 emissions, and a threshold vector error correction model (TVECM) is used to test how the variables respond to deviations from equilibrium. Then, the Markov switching model is used to test the robustness of the results. The research results show that China, India, South Africa, and other countries all have a nonlinear causal relationship between FDI and CO2 emissions. At the same time, the comovement of FDI and CO2 emissions in China has obvious structural break features, which are relevant for the underlying regime. Furthermore, the results also show that the adjustment process of the FDI toward equilibrium is highly persistent in the first regime, and CO2 emissions will adjust to an equilibrium state at a faster speed in the second regime. Therefore, this paper puts forward different policy suggestions for different countries. For China, we should pay attention to the long-term benefits of FDI and introduce high-tech green FDI.