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Will Carbon Emission Trading Policy Affect China's Global Resource Allocation?

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  • Su, Sanxin
  • Fan, Ruoshan

Abstract

This study takes China as a case to explore the impact of carbon emission trading policies on global resource allocation, which is measured by their influence on outward foreign direct investment (OFDI) and inward foreign direct investment (IFDI). As the world's second-largest economy, China not only has a large scale of foreign investment and foreign capital attraction, but also is the world's largest carbon dioxide emitter. Therefore, how China adjusts global resource allocation through carbon emission trading policies is of great theoretical and practical significance. This study selects the panel data of 28 provinces and cities in China from 2006 to 2020, and uses the difference-in-differences (DID) method to empirically analyze the impact of carbon emission policies on OFDI and IFDI. The results show that the carbon emissions trading policy significantly promotes outward foreign direct investment (OFDI) while exerting a notable inhibitory effect on inward foreign direct investment (FDI). However, this policy has no significant impact on the eastern region, while it has a significant promoting effect on OFDI in the central region and IFDI in the western region. Moreover, the rationalization and upgrading of industrial structure play a regulatory role in the impact of carbon emission policies on OFDI and IFDI. This finding provides new evidence for studying the impact of carbon emission trading policies on global resource allocation, and also provides valuable policy implications for China and other countries when implementing carbon emission trading policies.

Suggested Citation

  • Su, Sanxin & Fan, Ruoshan, 2025. "Will Carbon Emission Trading Policy Affect China's Global Resource Allocation?," Finance Research Letters, Elsevier, vol. 85(PE).
    • Handle: RePEc:eee:finlet:v:85:y:2025:i:pe:s1544612325015405
    DOI: 10.1016/j.frl.2025.108286
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    References listed on IDEAS

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