Impact of Chinese foreign direct investment on environmental stress in Pakistan: mediating role of technological innovation

This research examines the impact of Chinese foreign direct investments (FDI) on environmental stress in Pakistan, using time-series data from 1995 to 2023. The study employs a framework comprising threshold regression, a Nonlinear Autoregressive Distributed Lags (NARDL) model, and Bayesian mediation analysis for the empirical analysis. The results identify a green inversion effect, where Chinese FDI initially intensifies environmental stress but subsequently reduces it after reaching key macroeconomic thresholds. Specifically, the results reveal that Chinese FDI becomes more environmentally beneficial only after surpassing specific income and trade openness regimes. Further, asymmetric Chinese FDI shocks produce uneven environmental outcomes: adverse shocks cause immediate harm, while positive flows deliver delayed benefits, particularly under conditions of low economic structure complexity and high geopolitical risks. Moreover, technological innovation partially mediates the nexus between Chinese FDI and the environment, with its role intensifying in alignment with the China-Pakistan Economic Corridor (CPEC) and the Sustainable Development Goals (SDGs). These findings offer critical policy insights for designing innovation-led strategies to align FDI with long-term environmental and development goals.