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Assessing the role of foreign direct investment in environmental sustainability: a spatial semiparametric panel approach

Author

Listed:
  • Qichang Xie

    (Shandong Technology and Business University
    Collaborative Innovation Center for Financial Service Transformation and Upgrading)

  • Yingkun Yan

    (Nankai University)

  • Xu Wang

    (Shandong Technology and Business University)

Abstract

The debate on the environmental effects of foreign direct investment (FDI) has long been overdue but remains inconclusive. One key reason is that existing studies have focused mainly on the linear effect of FDI, ignoring its nonlinear effect. To remedy this deficiency, this paper establishes a nonlinear theoretical framework for modeling the connection between FDI and environmental pollution. Furthermore, we develop a spatial semiparametric autoregressive two-way effect panel data model to empirically test the nonlinear impact of FDI on China’s environment. The results reveal strong evidence for the positive spillover effect of pollutant emissions in the spatial distribution and an inverted “N-shaped” connection between FDI inflow and environmental pollution. The influx of FDI has been shown to positively moderate the impact of economic growth on environmental degradation. In contrast, FDI inflow has negatively mitigated the impacts of industrialization on environmental degradation. The findings also reveal that energy consumption, economic growth, industrialization, and population size exacerbate environmental pollution, while technology and urbanization do the opposite. The research results have important practical relevance for re-examining the environmental performance of FDI and formulating coherent policies for attracting investment and energy-reduction policies.

Suggested Citation

  • Qichang Xie & Yingkun Yan & Xu Wang, 2023. "Assessing the role of foreign direct investment in environmental sustainability: a spatial semiparametric panel approach," Economic Change and Restructuring, Springer, vol. 56(2), pages 1263-1295, April.
    • Handle: RePEc:kap:ecopln:v:56:y:2023:i:2:d:10.1007_s10644-022-09470-9
    DOI: 10.1007/s10644-022-09470-9
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    More about this item

    Keywords

    Foreign direct investment; Spatial semiparametric panel model; Environmental pollution; Nonlinear linkage;
    All these keywords.

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • 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
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • P28 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - Natural Resources; Environment

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