Heterogeneity of pollution haven/halo hypothesis and Environmental Kuznets Curve hypothesis across development levels of Chinese provinces

By Munir Ahmad, Gul Jabeen, Yiyun Wu. 2020

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Abstract The influence of foreign direct investment (FDI) inflows and income on the environmental sustainability has been investigated by several studies on China, as well as the rest of the world economies. Most of those studies confirmed the existence of the Pollution Haven (PHV), Pollution Halo (PHL), and Environmental Kuznets Curve (EKC) hypotheses. However, whether the heterogeneity of those hypotheses aligns with the development level of Chinese provinces remains an unexplored question. Therefore, the present work estimated the heterogeneous influence of FDI inflows and income on CO2 emissions (environmental unsustainability) across the development levels of Chinese provinces to verify the existence of aggregation bias. The dynamic common correlated effects mean group method is employed on panel data of 28 Chinese provinces. The key findings are: (1) FDI inflows and income promoted environmental sustainability and revealed the existence of PHL influence and EKC for aggregated samples. (2) At the provincial level, both variables exhibited heterogeneities in terms of their influence on environmental sustainability. On the one hand, FDI inflows imparted PHL influence in fifteen provinces at various development levels. On the other hand, FDI inflows imparted PHV influence in seven provinces at different development levels. (3) Though the existence of EKC is confirmed in only five provinces at various development levels, income promoted the environmental sustainability in thirteen of the provinces. (4) It is observed that the heterogeneous influence of FDI inflows and income on environmental sustainability is not aligned with the provincial development level. Thus, it has confirmed the existence of aggregation bias. It is advisable that, irrespective of the provincial development level, the provincial governments should adjust the degree of stringency of environmental regulations fo the foreign, as well as state enterprises, as per their environmental performance. It would be an effective way to put the provinces on the trajectory of ensuring economic as well as environmental sustainability.

Subfields: Economics and Econometrics, Environmental Engineering, Health, Toxicology and Mutagenesis

View Paper: https://www.semanticscholar.org/paper/d7ac6695c0c606f1623fcd6d1befdbbfa50606b8