Does green attract green? The impact of place-based green policies on green FDI

Many governments in emerging markets are using place-based policies such as green industrial parks to attract high-quality foreign investment that supports green transition. They face new competition as global value chains become greener and environmental regulation becomes stricter. However, it remains unclear whether green industrial parks can increase green FDI inflows, and whether the effects vary across cities with different institutional foundations. Drawing on a signaling perspective, we argue that National Demonstration Eco-Industrial Parks (NEIDPs) act as policy instruments with central-government endorsement and embed standardized governance requirements. NEIDPs can therefore send legible institutional signals to green multinational enterprises and raise city-level green FDI inflows. We further expect the marginal informational value of this signal to be context dependent. When a city already has strong environmental regulation and high governance capacity, investors face clearer and more credible expectations, and the additional attraction of NEIDPs should weaken. When institutional cues are limited, NEIDPs are more likely to have stronger effects. Using panel data for Chinese cities from 2008 to 2017, we test the hypotheses with a difference-in-differences design. The results show that NEIDPs designation significantly increases city-level green FDI inflows, while environmental regulatory stringency and local governance capacity negatively moderate this effect. By showing how effectiveness differs across institutional contexts, this study advances IB research on host-country policy competition and institutional uncertainty, and contributes to work on the location allocation of high-quality capital.