Empirical Study of the Impact of Outward Foreign Direct Investment on Water Footprint Benefit in China
Round 1
Reviewer 1 Report
I find the whole study interesting, but unfortunately insufficient for the high-scored journal. There is no clear aim of the research. No research question was verified. I recommend adding a few research questions. The literature review is quite poor. The method applied is also questionable. The Authors did not explain why they applied this methodology.
I think this article is quite novel and with the great potential.
Author Response
In response to the reviewer’s comment, we have stated the objectives explicitly in lines 133-142. Specifically, we have added the following：In general, OFDI is expected to promote economic growth and increase exports, while the resulting increase in consumption will reduce the social, spatial and environmental benefits of water footprint. OFDI is expected to replace domestic investment and increase the social, spatial and environmental benefits of water footprint. OFDI is also expected to promote technological progress, improve the efficiency of factor allocation, optimize industrial structure and the resulting increase in income will enhance the economic benefits of water footprint. Accordingly, we propose to bridge the gap in the literature in the following ways: (1) Based on a cross-country dynamic panel data from 2003 to 2016, we examine the impact of China's OFDI on water footprint benefit using the system generalized moment estimation method (System GMM); (2) We further analyze the impact of different types of OFDI on water footprint benefits.In response to the reviewer’s comment, we add the research questions in lines 64-73: Hence, it is essential to improve the water footprint benefit (water footprint benefit refers to the water footprint consumed by unit population, unit economic output and unit space in a region, and the proportion of wastewater discharged from water footprint) to alleviate the contradiction between supply and demand of water resources, and to reduce the total amount of water used and water pollution. However, most researchers have focused on studying the influencing factors of water footprint. Also, since the quality of China's OFDI has been on the low side, it is worth studying which type of OFDI should be added to enhance the quality of OFDI. Yet there has been no work in the literature that considers the quality of OFDI from the perspective of water footprint benefit. And fewer attention has been paid to studying the impact of China's OFDI on the water footprint benefit.
As suggested by the reviewer, we revised the literature review part in lines 94-100, 110-115 and 122-127, adding the work by Nouri etal (2019), Song and Chen (2019), Mourad etal (2019), Xie etal (2019), Wang etal (2019). We also added some discussions about the impact of inward foreign direct investment (IFDI) on water footprint, which read as follows: Closely related to this paper is that Kan and Lv (2017, 2018) measured the inward foreign direct investment (IFDI) in China by using the foreign capital dependence for empirical research, and the results showed that China's IFDI promotes the improvement of water footprint, although the impact is not statistically significant.
As suggested by the reviewer, we have provided the reasons for using the system GMM method in lines 205-212, specifically as follows: To address the potential endogeneity bias, researchers commonly used the GMM method. According to Arellano and Bond (1991), Arellano and Bover (1995), Blundell and Bond (1998), the GMM method can be divided into the differential GMM method and the system GMM. The estimator of the system GMM method further uses the moment condition of the level equation on the basis of the estimator of the differential GMM method, and takes the first-order difference of the lagged variable as the instrumental variable for the corresponding level variable in the level equation. Therefore, the system GMM method is used here to estimate the model.
Reviewer 2 Report
The article entitled “Empirical study of the impact of outward FDI on Water Footprint benefit in China” represents a valuable contribution to the literature. This is the first article assessing the link between OFDI and domestic water footprint. It is a well written article with new and valuable insights.
Since this is the first article to empirically assess the effect of OFDI on water footprint (benefits), the authors should add a short paragraph on why they expect an effect in the introduction or after the literature review. How can investment abroad change water consumption domestically? There are reasons mentioned after Ln. 245. The authors should give a brief summary on these expectations before. This would increase clarity on the research design decisions.
Ln. 33 to 44: The motivation of the paper should be expanded beyond simple quantities (e.g. increase in FDI, in water consumption, and pollution). Why is it important to assess the effect of OFDI on water footprint benefits?
Ln. 61: Add a short definition to the term water footprint benefit. It becomes more clear in the empirics, but is imprecise at this point.
Ln. 108: say more about the literature, which assesses the effect of FDI on water footprint. What FDI was assessed? Why is the current study different?
Ln. 136 to 141: How are the dependent variables correlated? What is the geographic and time coverage of the dependent variables? How did the authors treat missing values?
Ln. 150 to 152: What did the authors do in case of disagreement across data sources? Was there some cross-validation?
Table 2: Why do we see a negative effect on water footprint intensity and positive effect on other water footprint measures? Could it be that another indirect mechanism is at stake: OFDI causes economic growth, this leads to higher consumption and the increased consumption leads to higher per capita water footprint and higher water footprint land density as well as higher water footprint abandonment rates. Even though the authors control for individual income (yet insignificant), I fear that the results show a more indirect effect via consumption.
Table 3 and 4: These are the most interesting results of the study and should be highlighted more in the abstract and introduction.
Author Response
In response to the reviewer’s comment, we have added the following in lines 133-138: In general, OFDI is expected to promote economic growth and increase exports, while the resulting increase in consumption will reduce the social, spatial and environmental benefits of water footprint. OFDI is expected to replace domestic investment and increase the social, spatial and environmental benefits of water footprint. OFDI is also expected to promote technological progress, improve the efficiency of factor allocation, optimize industrial structure and the resulting increase in income will enhance the economic benefits of water footprint.In response to the reviewer’s comment, we have made revisions in lines 64-73: Hence, it is essential to improve the water footprint benefit (water footprint benefit refers to the water footprint consumed by unit population, unit economic output and unit space in a region, and the proportion of wastewater discharged from water footprint) to alleviate the contradiction between supply and demand of water resources, and to reduce the total amount of water used and water pollution. However, most researchers have focused on studying the influencing factors of water footprint. Also, since the quality of China's OFDI has been on the low side, it is worth studying which type of OFDI should be added to enhance the quality of OFDI. Yet there has been no work in the literature that considers the quality of OFDI from the perspective of water footprint benefit. And fewer attention has been paid to studying the impact of China's OFDI on the water footprint benefit.
As suggested by the reviewer, we have added the definition of water footprint benefits in lines 65-67 as follows: water footprint benefit refers to the water footprint consumed by unit population, unit economic output and unit space in a region, and the proportion of wastewater discharged from water footprint.
As suggested by the reviewer, we revised the literature review part in lines 94-100, 110-115 and 122-127, adding the work by Nouri etal (2019), Song and Chen (2019), Mourad etal (2019), Xie etal (2019), Wang etal (2019). We also added some discussions about the impact of inward foreign direct investment (IFDI) on water footprint, which read as follows: Closely related to this paper is that Kan and Lv (2017, 2018) measured the inward foreign direct investment (IFDI) in China by using the foreign capital dependence for empirical research, and the results showed that China's IFDI promotes the improvement of water footprint, although the impact is not statistically significant.
As suggested by the reviewer, we have made revisions in lines 161-171, 152-153, 191-192 and the footnote on page 4. Specifically, ①For how the dependent variables are related, it has been revised as follows: As is defined in the above, water footprint benefits include social benefit of water footprint (water footprint consumed by unit population, reflecting the capacity of water resources to support population), economic benefit of water footprint (water footprint consumed by unit economic output, reflecting economic output brought by water resource consumption), and spatial benefit of water footprint (water footprint consumed by unit space, reflecting the amount of water resources consumed in land area), environmental benefit of water footprint (the proportion of wastewater discharged from consumed water footprint, reflecting the capability of clean utilization of water resources). The water footprint/population (the per capita water footprint), water footprint/GDP (water footprint intensity), water footprint/land area (water footprint land density) and waste water/water footprint (water footprint abandonment rate) are used to measure the social, economic, spatial and environmental benefits of water footprint, respectively. ②For the samples, it has been indicated that the sample period is 2003-2016, and the sample countries are 56, and described in details in the footnote on P.4 as follows: To achieve sample representativeness for each type of OFDI, we selected countries with large and continuous OFDI traffic. The resulting sample consists of typically the top 20 countries in previous years, excluding the British Virgin Islands, Cayman Islands, Bermuda Islands, Hong Kong, Macao and Taiwan. The final sample countries for market-seeking OFDI include Philippines, Malaysia, Pakistan, Thailand, Laos, Sri Lanka, Brunei, Myanmar, Bangladesh, Cambodia and Vietnam. The resource-seeking OFDI sample countries include Saudi Arabia, Australia, Russia, South Africa, Iran, Venezuela, Mongolia, Brazil, Kazakhstan, and Algeria. Finally, technology-seeking OFDI sample countries include the United States, 27 EU countries, Japan, Canada, New Zealand, Korea, Singapore, Norway and Switzerland. ③For missing values, linear trend interpolation method is used to fill in some missing values to complete the panel data.
In response to the reviewer’s question concerning some inconsistencies of the variable values reported by different data sources, we explained in the footnote on page 5, specifically as follows: Most of the data sources report identical values for variables used in this paper. A few inconsistencies arise when the data published in China Statistical Yearbook differ from those published by other specialized professional data sources. But the differences, if any, are very small, especially after taking logarithms of the slightly different values. We found no statistically significant differences (at 10% level) after taking logarithmic transformation of the non-identical values.
As suggested by the reviewer, we have added consumption effect in lines 283, 286, 306-308, 375-376, 393-395, 401-402, 409-410, 412-417, 419-421 and 425-426.
As suggested by the reviewer, we have highlighted policy implications in the abstract and conclusion sections, such as the following: the findings from this study have relevant policy implications and can help provide some policy prescriptions for an economy such as China to engage in OFDI and achieve enhancement of water footprint benefits. For instance, in addition to expanding market-seeking and resource- seeking OFDI, China should actively increase the scale of technology-seeking OFDI. Also, while continuing to expand path-wise OFDI, China should further increase the scale of inverse OFDI. By taking advantage of the complementary and synergetic effects of different types of OFDI, an economy can capture the whole effects of OFDI to reap water footprint’s full social, economic, spatial and environmental benefits.
Round 2
Reviewer 1 Report
None
Reviewer 2 Report
The authors have substantially improved the manuscript and I recommend publication in Sustainability.
Merely in the discussion, the spacing in listings should be checked again. Sometimes it is written in "(4)consumption effect" and other times as "(4) consumption effect".
