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Environmental regulation and foreign direct investment: Evidence from China's outward FDI

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  • Dong, Yan
  • Tian, Jinhuan
  • Ye, Jingjing

Abstract

This paper investigates whether environmental regulation affects patterns of foreign direct investment (FDI) and how such patterns change across time, industries, and destination countries. We examine the pattern of Chinese FDI outflow over 2008–2018 and apply difference-in-differences estimation to circumvent other potential confounders. As a result, we find evidence that host countries with more relaxed environmental regulations attract foreign direct investment from polluting industries. However, the preference for destinations with lax regulations has been weakened among China's multinational enterprises since the promotion of the “Belt and Road Initiative” began in 2013.

Suggested Citation

  • Dong, Yan & Tian, Jinhuan & Ye, Jingjing, 2021. "Environmental regulation and foreign direct investment: Evidence from China's outward FDI," Finance Research Letters, Elsevier, vol. 39(C).
    • Handle: RePEc:eee:finlet:v:39:y:2021:i:c:s1544612320306188
    DOI: 10.1016/j.frl.2020.101611
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    Cited by:

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    2. Di Ubaldo, Mattia & Gasiorek, Michael, 2022. "Non-trade provisions in trade agreements and FDI," European Journal of Political Economy, Elsevier, vol. 75(C).
    3. Shi, Xing & Zeng, Yujie & Wu, Yanrui & Wang, Shuai, 2023. "Outward foreign direct investment and green innovation in Chinese multinational companies," International Business Review, Elsevier, vol. 32(5).
    4. Chen, Lin & Cheng, Chen, 2023. "Emigration and outward FDI in China: Key role of institutional quality," Finance Research Letters, Elsevier, vol. 51(C).
    5. Feng, Ya & Wen, Junqi, 2023. "Foreign direct investment and employee income share: Firm-level evidence," Finance Research Letters, Elsevier, vol. 55(PA).
    6. Chen, Wenchuan & Xiang, Yuhan & Liu, Jin & Zhu, Yilin, 2022. "Foreign investor and industrial pollution: Evidence from sulfur dioxide emission," Finance Research Letters, Elsevier, vol. 50(C).
    7. Xing Shi & Yujie Zeng & Yanrui Wu & Shuai Wang, 2023. "Outward Foreign Direct Investment and Green Innovation in Chinese Multinational Companies," Economics Discussion / Working Papers 23-05, The University of Western Australia, Department of Economics.
    8. Das, Khanindra Ch & Mahalik, Mantu Kumar & Sadorsky, Perry, 2023. "Tax provision by international subsidiaries of Indian extractive industry multinationals: Do environmental pollution and corruption matter?," Resources Policy, Elsevier, vol. 80(C).
    9. Abdul Sattar & Temesgen Hordofa Tolassa & Muhammad Noshab Hussain & Muhammad Ilyas, 2022. "Environmental Effects of China’s Overseas Direct Investment in South Asia," SAGE Open, , vol. 12(1), pages 21582440221, February.
    10. Xu, Le & Yang, Lili & Li, Ding & Shao, Shuai, 2023. "Asymmetric effects of heterogeneous environmental standards on green technology innovation: Evidence from China," Energy Economics, Elsevier, vol. 117(C).
    11. Peng, Hua-Rong & Tan, Xiujie & Managi, Shunsuke & Taghizadeh-Hesary, Farhad, 2022. "Club convergence in energy efficiency of Belt and Road Initiative countries: The role of China’s outward foreign direct investment," Energy Policy, Elsevier, vol. 168(C).

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    More about this item

    Keywords

    Foreign direct investment; Environmental regulation; Difference-in-differences estimation;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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