Does FDI improve green total factor energy efficiency under heterogeneous environmental regulation? Evidence from China

Green development is a strategy for China’s sustainable economic growth, and improving green total factor energy efficiency (GTFEE) is the key to achieving the dual goals of energy conservation, emission reduction, and economic development. This paper takes panel data of 267 prefecture-level cities in China from 2004 to 2019 as samples to explore how heterogeneous environmental regulation can have the effects of FDI on GTFEE. The results show that, first, except for environmental regulation and FDI independently affecting GTFEE, there is a synergistic effect between environmental regulation and FDI, and their interaction can also significantly affect GTFEE. Secondly, FDI has no significant impact on GTFEE when environmental regulation is low, but FDI can significantly improve GTFEE when environmental regulation is high. Thirdly, market-based environmental regulations (MER) have a better improvement effect on GTFEE than command-based environmental regulations (CER). Therefore, it is necessary to pay attention to the benign interaction between FDI and environmental regulation, especially giving full play to the role of market-based environmental regulation and further improving the design of command-based environmental regulation.