Climate risk, climate risk distance and foreign direct investment
Purpose – Climate risk greatly increases the risk exposure of global investments. Both the climate risks of home countries and host countries may affect international investment behaviors. The purpose of this paper is to explore the impact of climate risk and climate risk distance on foreign direct...
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| Format: | Article |
| Language: | English |
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Emerald Publishing
2023-01-01
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| Series: | International Journal of Climate Change Strategies and Management |
| Subjects: | |
| Online Access: | https://www.emerald.com/insight/content/doi/10.1108/IJCCSM-09-2021-0100/full/pdf |
| _version_ | 1827909657227689984 |
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| author | Zhaopeng Xing Yawen Wang |
| author_facet | Zhaopeng Xing Yawen Wang |
| author_sort | Zhaopeng Xing |
| collection | DOAJ |
| description | Purpose – Climate risk greatly increases the risk exposure of global investments. Both the climate risks of home countries and host countries may affect international investment behaviors. The purpose of this paper is to explore the impact of climate risk and climate risk distance on foreign direct investment (FDI) inflows and outflows. Targeted proposals are provided to promote international economic and trade cooperation and the authors provide suggestions for the FDI strategies of multinational enterprises. Design/methodology/approach – The authors define “climate risk distance” as the difference in climate risks between two countries. This paper uses both a theoretical model and a generalized least squares test to investigate the impact of climate risk distance on FDI from the perspectives of FDI inflows and outflows. In addition, the authors subdivide the samples according to the sign of climate risk distance and rank the FDI share from home country to host country into four groups according to the host country’s climate risk index. Finally, the authors undertake empirical tests with outward foreign direct investment (OFDI) data to support the empirical results. Findings – Investors from countries with low climate risks have the upper hand due to their competitive advantages, like their skills, trademarks and patent rights, which they can transfer abroad to offset the disadvantage of being non-native. This is generally defined as ownership advantage. The impact of climate risk distance on FDI depends on the sign of climate risk distance. Specifically, host countries with higher climate risks compared with the climate risk levels of home countries may experience insignificant reductions in FDI inflows. For investors from home countries with higher climate risks, they are less likely to invest in host countries with lower climate risks. The results for samples from emerging market economies are shown to be more significant. Originality/value – This study advances the O (ownership advantage) part of the ownership, location and internationalization (OLI) paradigm by incorporating the climate risk distance between the home country and the host country into the influencing factors of FDI. Both the O part and the L (location advantage, the advantage that host countries offers to make internationalization worthwhile to undertake FDI) part of the OLI paradigm concerning climate risks are validated with FDI and OFDI data. |
| first_indexed | 2024-03-13T01:41:46Z |
| format | Article |
| id | doaj.art-692226c63e594460a76e4eeac773194b |
| institution | Directory Open Access Journal |
| issn | 1756-8692 |
| language | English |
| last_indexed | 2024-03-13T01:41:46Z |
| publishDate | 2023-01-01 |
| publisher | Emerald Publishing |
| record_format | Article |
| series | International Journal of Climate Change Strategies and Management |
| spelling | doaj.art-692226c63e594460a76e4eeac773194b2023-07-03T12:50:14ZengEmerald PublishingInternational Journal of Climate Change Strategies and Management1756-86922023-01-01151415710.1108/IJCCSM-09-2021-0100Climate risk, climate risk distance and foreign direct investmentZhaopeng Xing0Yawen Wang1School of Economics, Xiamen University, Xiamen, ChinaSchool of Economics, Xiamen University, Xiamen, ChinaPurpose – Climate risk greatly increases the risk exposure of global investments. Both the climate risks of home countries and host countries may affect international investment behaviors. The purpose of this paper is to explore the impact of climate risk and climate risk distance on foreign direct investment (FDI) inflows and outflows. Targeted proposals are provided to promote international economic and trade cooperation and the authors provide suggestions for the FDI strategies of multinational enterprises. Design/methodology/approach – The authors define “climate risk distance” as the difference in climate risks between two countries. This paper uses both a theoretical model and a generalized least squares test to investigate the impact of climate risk distance on FDI from the perspectives of FDI inflows and outflows. In addition, the authors subdivide the samples according to the sign of climate risk distance and rank the FDI share from home country to host country into four groups according to the host country’s climate risk index. Finally, the authors undertake empirical tests with outward foreign direct investment (OFDI) data to support the empirical results. Findings – Investors from countries with low climate risks have the upper hand due to their competitive advantages, like their skills, trademarks and patent rights, which they can transfer abroad to offset the disadvantage of being non-native. This is generally defined as ownership advantage. The impact of climate risk distance on FDI depends on the sign of climate risk distance. Specifically, host countries with higher climate risks compared with the climate risk levels of home countries may experience insignificant reductions in FDI inflows. For investors from home countries with higher climate risks, they are less likely to invest in host countries with lower climate risks. The results for samples from emerging market economies are shown to be more significant. Originality/value – This study advances the O (ownership advantage) part of the ownership, location and internationalization (OLI) paradigm by incorporating the climate risk distance between the home country and the host country into the influencing factors of FDI. Both the O part and the L (location advantage, the advantage that host countries offers to make internationalization worthwhile to undertake FDI) part of the OLI paradigm concerning climate risks are validated with FDI and OFDI data.https://www.emerald.com/insight/content/doi/10.1108/IJCCSM-09-2021-0100/full/pdfClimate riskClimate risk distanceForeign direct investmentOutward foreign direct investment |
| spellingShingle | Zhaopeng Xing Yawen Wang Climate risk, climate risk distance and foreign direct investment International Journal of Climate Change Strategies and Management Climate risk Climate risk distance Foreign direct investment Outward foreign direct investment |
| title | Climate risk, climate risk distance and foreign direct investment |
| title_full | Climate risk, climate risk distance and foreign direct investment |
| title_fullStr | Climate risk, climate risk distance and foreign direct investment |
| title_full_unstemmed | Climate risk, climate risk distance and foreign direct investment |
| title_short | Climate risk, climate risk distance and foreign direct investment |
| title_sort | climate risk climate risk distance and foreign direct investment |
| topic | Climate risk Climate risk distance Foreign direct investment Outward foreign direct investment |
| url | https://www.emerald.com/insight/content/doi/10.1108/IJCCSM-09-2021-0100/full/pdf |
| work_keys_str_mv | AT zhaopengxing climateriskclimateriskdistanceandforeigndirectinvestment AT yawenwang climateriskclimateriskdistanceandforeigndirectinvestment |