Does Foreign Institutional Capital Promote Green Growth for Emerging Market Firms?

We examine how foreign institutional capital affects carbon emissions in emerging-market firms. As shocks to foreign institutional capital, we consider firm-level inclusion in the MSCI Index as well as market-level inclusion of China A-shares. After index inclusion, emissions grow at a faster rate than outputs, such that emission intensities increase at the expense of lower abatement expenditures. Emission intensities increase greater in countries with weaker environmental policies and with more foreign capital from green investors. In contrast, emission intensities tend not to increase in developed-market firms after index inclusion. Overall, results suggest that environmental considerations are assigned lower priority when emerging-market firms utilize foreign capital to boost growth.