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FDI and environmental regulations in China

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  • Jing Zhang
  • Xiaolan Fu

Abstract

This paper uses provincial socioeconomic and environmental data and investigates whether there exists an intra-county pollution haven effect for China. We examine whether differences in the stringency of environmental regulations affect the choice of location for FDI in China. We use a five-year panel dataset for 30 provinces in China that includes three measures of environmental regulations, which vary across time and province, and a significant number of control variables including measures of agglomeration and factor abundance. We control for unobserved heterogeneity by using a feasible generalised least square estimator. Our results suggest that environmental stringency has a significant and negative effect on FDI, leading us to conclude that, ceteris paribus, FDI prefers to locate into regions with relatively weak environmental regulations. This provides some support for the existence of a pollution haven within China.

Suggested Citation

  • Jing Zhang & Xiaolan Fu, 2008. "FDI and environmental regulations in China," Journal of the Asia Pacific Economy, Taylor & Francis Journals, vol. 13(3), pages 332-353.
    • Handle: RePEc:taf:rjapxx:v:13:y:2008:i:3:p:332-353
    DOI: 10.1080/13547860802131326
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    References listed on IDEAS

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    1. Oecd, 2000. "Main Determinants and Impacts of Foreign Direct Investment on China's Economy," OECD Working Papers on International Investment 2000/4, OECD Publishing.
    2. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249.
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