Existing studies pay little attention to when or under which conditions foreign direct investment (FDI) can spill energy-saving technologies. From a perspective of energy-biased technical change and using a two-layer nested constant elasticity of substitution (CES) production function, this paper investigates the energy-saving spillover effect of FDI on technical change (i.e., energy-saving spillovers) in China between 2002 and 2015. In particular, we consider the conditions of marketization, industry, technology, and labor mobility to examine whether and when FDI has energy-saving spillovers. The results indicate no income inequality effect, i.e., there is no evidence supporting that FDI flowing into low- and middle-income regions increases energy consumption, while FDI flowing into high-income regions conserves energy. However, there is a condition effect: FDI can improve (support the halo effect) or deteriorate (contradict the halo effect) the environmental performance under different conditions. Moreover, there is a threshold effect: the direction of FDI spillovers varies with the different levels of the threshold variables. An increasing marketization motivates enterprises to select energy-biased technologies. It is more likely to generate energy-saving spillovers in the regions with a lower specialized agglomeration level. FDI will have energy-biased spillovers when domestic technological level is relatively high with an evident energy-biased technology. In addition, a moderate labor mobility is beneficial to the energy-saving spillovers of FDI.

Introduction

Excessive investment, numerous energy consumption and rapid growth are widely claimed to be the typical and primary characteristics of China’s economy. China, yet, is now suffering from the dual pressures of energy resources deficiency and environmental pollution. Mounting concern about these issues has increased the urgency of understanding this phenomenon and finding solutions through the technology, especially the clean technology in China. With respect to the solutions for these issues, it must be pointed out that the foreign direct investment (FDI) has increasingly become an important way to diffuse energy-saving technologies and improve the environmental quality. However, when does FDI spill energy-saving technologies? The correlations between investment in environmental governance and FDI and between energy consumption intensity and FDI are presented in Fig. 1 and Fig. 2, respectively. The two downward-sloping lines in the two figures show that both investment in environmental governance and energy consumption intensity declines with FDI in China, which seems to contradict the findings in Lin and Liu (2015). According to the halo effect hypothesis, advanced knowledge or technology and environmentalfriendly practices brought by multinational companies would motivate domestic companies to adopt the energy-saving technologies, which would improve the environmental quality in the host countries. Moreover, some studies also find supporting evidence that FDI can exhibit important energy-saving technology spillover effects.