FDI spillover effects on sectoral green productivity in Taiwan

Amid growing global emphasis on sustainable development, foreign direct investment (FDI) has emerged as a critical driver of economic growth in emerging economies such as Taiwan. In this context, historical inflows have contributed to technological advancement and industrial expansion. However, integrating environmental sustainability into growth models raises questions about how FDI influences productivity through the adoption of alternative energy sources rather than fossil fuels. This study examines the spillover mechanisms of inward FDI (IFDI) and outward FDI (OFDI) on sectoral productivity in Taiwan over the period 1994-2022. The analysis focuses on their mediating role in the relationship between per capita renewable energy consumption and productivity across the manufacturing, electricity and gas, and mining sectors. The mediation results indicate that IFDI and OFDI enhance productivity by 3.19 percent in the electricity and gas sector, 2.5 percent in manufacturing, and 3.12 percent in mining for each 1 percent increase in per capita renewable energy consumption. These effects offset previously non-significant direct relationships in the latter two sectors. By contrast, no comparable effects are observed for nuclear energy. These findings indicate the presence of sustainable spillover effects associated with IFDI through technology transfer and a filter-out mechanism linked to OFDI. The results provide relevant insights for policy design aimed at aligning foreign direct investment with renewable energy deployment to support green productivity gains.