Pollution haven hypothesis and environmental impacts of foreign direct investment: The case of industrial emission of sulfur dioxide (SO2) in Chinese provinces

By Jie He. 2006

717 citations recorded by the source corpus.

Recognizing the complex inter-correlation between FDI, emission and the three economic determinants of emission, we constructed a simultaneous model to study the FDI-emission nexus in China by exploring both the dynamic recursive FDI entry decision and the linkage from FDI entry to final emission results under the intermediation of the scale, composition and technique effects. The model is then estimated on the panel data of China's 29 provinces' industrial SO2 emission. Result shows that, exerting through different channels; the total impact of FDI on industrial SO2 emission is very small. With 1% increase in FDI capital stock, industrial SO2 emission will increase by 0.099%, in which the emission increase caused by impact of FDI on economic growth and composition transformation cancels out the emission reduction result due to FDI's role in reinforcement of environmental regulation. By introducing to the simultaneous system the recursive dynamism that supposes FDI entry decision to depend on last period's economic growth and environmental regulation stringency, our model also provides convincing supportive evidences for ‘Pollution haven' hypothesis. Although FDI enterprises in China generally produce with higher pollution efficiency, the rise in environmental regulation stringency still has modest deterrent effect on FDI capital inflow. Furthermore, the composition transformation impact of FDI in China seems to be dominated by the inflow of foreign capital pursuing a ‘production platform' that provides lower pollution regulation compliance cost.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/214900ce567e5749fed0566901e81fb6a03bacfb

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Citations in the corpus

Growth, Foreign Direct Investment, And The Environment: Evidence From Chinese Cities (2011, neutral): “He (2006) is one exception and constructs a five-equation simultaneous system to study the FDI-emission relationship in China.”
Foreign direct Investment–CO2 emissions nexus in Middle East and North African countries: Importance of biomass energy consumption (2019, background): “This indicates that, in the absence of authoritarian environmental protocols and forfeits for polluters in this stage of economic development for MENA, FDI is a part of pollutant manufacturing firms (He, 2006; Liang, 2006; Neequaye and Oladi, 2015).”
How does Foreign Direct Investment Affect Pollution? Toward a Better Understanding of the Direct and Conditional Effects (2015, positive): “Following themost common empirical approaches, we chose analysing FDI stocks instead of flows [e.g., Cole and Elliott (2005); He 2006; Kellenberg 2009; among others].”
Causal interactions between CO2 emissions, FDI, and economic growth: Evidence from dynamic simultaneous-equation models (2014, result): “Earlier studies, such as those by Smarzynska and Wei (2001), Xing and Kolstad (2002), Eskeland and Harrison (2003), He (2006), and Zhan (2011) document a positive relationship that runs from FDI to pollutant emissions in the host countries.”
T ra nsna tio na l linka ge s a nd t he spill ove r of env iro n m ent- ef fi ci ency into develo pi ng c ountri es (2009, background): “Again, based on an absolute measure of emissions, He (2006) estimates that Chinese provinces with a greater FDI stock have marginally higher levels of SO2 emissions.”
When does FDI matter? The roles of local institutions and ethnic origins of FDI (2013, background): “First, as previously discussed, FDI mainly focuses on manufacturing industries, such as transportation machinery, electrical and electronics equipment, textile, and chemical products, which generate much more pollution than the agriculture and services sectors (He, 2006).”
Understanding China's Urban Pollution Dynamics (2013, background): “Using data from 1990s and early 2000s, He (2006, 2009) finds evidence that pollution and FDI are positively correlated.”
Cities and Green Growth: A Conceptual Framework (2011, background): “There is evidence that FDI is locating in China because of the lower cost of pollution regulation compliance (He, 2006).”