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Environmental Regulation and Foreign Direct Investment: Evidence from China’s Eleventh and Twelfth Five-Year Plans

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  • Yuqing Ge

    (School of Business, Central South University, Changsha 410083, China)

  • Yucai Hu

    (School of Business, Central South University, Changsha 410083, China)

  • Shenggang Ren

    (School of Business, Central South University, Changsha 410083, China)

Abstract

This paper investigates environmental regulation and its impact on inward foreign direct investment (FDI) in developing countries. Based on the Chinese province-industry-level panel data in the period 2001 to 2015, we use a difference-in-difference-in-differences (DDD) model to evaluate pollution haven behavior in the context of China’s 11th and 12th Five-Year Plans SO 2 emissions reduction policy. The results show that the policy leads to fewer FDI inflows to its highly-polluting industries in provinces with tougher pollution reduction targets. In addition, the environmental policy has significantly inhibited FDI inflows in provinces with stricter environmental enforcement, while investment in provinces with worse environmental enforcement is insensitive to environmental policy. These findings are consistent with pollution haven behavior. In contrast, FDI in industries with high levels of technology is not significantly influenced by the policy, whereas the FDI in industries with low levels of technology shows a negative response to environmental policy. This is overall evidence confirming a pollution haven effect (PHE), although technology differences could alleviate the negative effects of environmental regulation on inward FDI.

Suggested Citation

  • Yuqing Ge & Yucai Hu & Shenggang Ren, 2020. "Environmental Regulation and Foreign Direct Investment: Evidence from China’s Eleventh and Twelfth Five-Year Plans," Sustainability, MDPI, vol. 12(6), pages 1-18, March.
    • Handle: RePEc:gam:jsusta:v:12:y:2020:i:6:p:2528-:d:336140
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    Cited by:

    1. Xiaoyu Yang & Jianqiang Dong & Xiaopeng Guo, 2023. "Spatial Dependence of SO 2 Emissions and Energy Consumption Structure in Northern China," Sustainability, MDPI, vol. 15(3), pages 1-14, January.
    2. Yongwang Zhang & Lin Song, 2020. "Defining the Optimal Implementation Space of Environmental Regulation in China’s Export Trade," Sustainability, MDPI, vol. 12(20), pages 1-19, October.
    3. Zhu, Junpeng & Wu, Shaohui & Xu, Junbing, 2023. "Synergy between pollution control and carbon reduction: China's evidence," Energy Economics, Elsevier, vol. 119(C).

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