Green manufacturing certification and outward foreign direct investment: A supply chain network capability perspective

Against the backdrop of environmental regulation extending across global supply chains, this paper examines whether certified green capabilities can be transformed into supply chain network capabilities that support firms' outward foreign direct investment (OFDI). Using data on Chinese listed manufacturing firms and their OFDI from 2010 to 2023, we treat green manufacturing certification (GMC) as an exogenous policy shock and estimate its effects using a multi-period difference-in-differences design. We find that firms obtaining GMC significantly expand their OFDI. From a supply chain network capability perspective, GMC promotes OFDI by alleviating environmental risk constraints in upstream and downstream supply chains and strengthening green collaborative innovation with key downstream customers. In terms of destination choice, certified firms increasingly direct incremental OFDI toward host countries with stronger sustainability performance, higher global value chain (GVC) positions, and more mature institutional environments. Heterogeneity analyses show that these effects are concentrated among more constrained firms: environmentally constrained firms tend to invest in countries with higher levels of sustainable development, technologically constrained firms prefer destinations with higher GVC positions, and market-constrained firms favor economies with stronger governance. Overall, we embed green regulation within a supply chain network capability framework and demonstrate how institutionalized green capabilities shape firms’ cross-border investment allocation through supply chain governance and network collaboration, providing micro-level evidence from an emerging economy.