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Pollution haven hypothesis and Environmental impacts of foreign direct investment: The Case of Industrial Emission of Sulfur Dioxide (SO2) in Chinese provinces

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  • Jie HE

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    (Centre d'Etudes et de Recherches sur le Développement International)

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Abstract

Recognizing the complex inter-correlation between FDI, emission and the three economic determinants of emission, we constructed a simultaneous model to study the FDI-emission nexus in China by exploring both the dynamic recursive FDI entry decision and the linkage from FDI entry to final emission results under the intermediation of the scale, composition and technique effects. The model is then estimated on the panel data of China’s 29 provinces’ industrial SO2 emission. Result shows that, exerting through different channels; the total impact of FDI on industrial SO2 emission is very small. With 1% increase in FDI capital stock, industrial SO2 emission will increase by 0.099%, in which the emission increase caused by impact of FDI on economic growth and composition transformation cancels out the emission reduction result due to FDI’s role in reinforcement of environmental regulation. By introducing to the simultaneous system the recursive dynamism that supposes FDI entry decision to depend on last period’s economic growth and environmental regulation stringency, our model also provides convincing supportive evidences for ‘Pollution haven’ hypothesis. Although FDI enterprises in China generally produce with higher pollution efficiency, the rise in environmental regulation stringency still has modest deterrent effect on FDI capital inflow. Furthermore, the composition transformation impact of FDI in China seems to be dominated by the inflow of foreign capital pursuing a ‘production platform’ that provides lower pollution regulation compliance cost.

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Bibliographic Info

Paper provided by CERDI in its series Working Papers with number 200506.

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Length: 39
Date of creation: 2005
Date of revision:
Handle: RePEc:cdi:wpaper:676

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Keywords: composition effect; scale effect; simultaneous system; industrial SO2 emission; foreign direct investment; income effect; and pollution haven hypothesis;

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Cited by:
  1. Yang, Boqiong & Chen, Jianguo, 2011. "An empirical model of the environmental effect of FDI in host countries: Analysis based on Chinese panel data," IAMO Forum 2011: Will the "BRICs Decade" Continue? – Prospects for Trade and Growth 3, Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO).
  2. Al-mulali, Usama & Foon Tang, Chor, 2013. "Investigating the validity of pollution haven hypothesis in the gulf cooperation council (GCC) countries," Energy Policy, Elsevier, Elsevier, vol. 60(C), pages 813-819.
  3. Muhammad, Shahbaz & Samia, Nasreen & Talat, Afza, 2011. "Environmental consequences of economic growth and foreign direct investment: evidence from panel data analysis," MPRA Paper 32547, University Library of Munich, Germany, revised 03 Aug 2011.
  4. David Styles & Francesco Testa & Fabio Iraldo, 2010. "Direct regulation is an efficient approach to industrial environmental improvement: empirical evidence and perceptions from chemical manufacturers in Ireland and Italy," Working Papers 201002, Scuola Superiore Sant'Anna of Pisa, Istituto di Management.
  5. Anis Omri & Duc Khuong Nguyen & Christophe Rault, 2014. "Causal interactions between CO2 emissions, FDI, and economic growth: Evidence from dynamic simultaneousequation models," Working Papers, Department of Research, Ipag Business School 2014-542, Department of Research, Ipag Business School.
  6. Chaudhuri, Sarbajit & Mukhopadhyay, Ujjaini, 2011. "Foreign direct investment, environmentally sound technology and informal sector," MPRA Paper 31447, University Library of Munich, Germany.
  7. Jalil, Abdul & Feridun, Mete, 2011. "The impact of growth, energy and financial development on the environment in China: A cointegration analysis," Energy Economics, Elsevier, Elsevier, vol. 33(2), pages 284-291, March.
  8. Fetscherin, Marc & Voss, Hinrich & Gugler, Philippe, 2010. "30 Years of foreign direct investment to China: An interdisciplinary literature review," International Business Review, Elsevier, Elsevier, vol. 19(3), pages 235-246, June.
  9. Wang, Danny T. & Gu, Flora F. & Tse, David K. & Yim, Chi Kin (Bennett), 2013. "When does FDI matter? The roles of local institutions and ethnic origins of FDI," International Business Review, Elsevier, Elsevier, vol. 22(2), pages 450-465.
  10. Duo Qin, 2010. "Long-term Nexus of Industrial Pollution and Income in China," Working Papers, Queen Mary, University of London, School of Economics and Finance 659, Queen Mary, University of London, School of Economics and Finance.
  11. Elliott, Robert J.R. & Sun, Puyang & Chen, Siyang, 2013. "Energy intensity and foreign direct investment: A Chinese city-level study," Energy Economics, Elsevier, Elsevier, vol. 40(C), pages 484-494.
  12. Yanrui Wu, 2007. "Environmental Efficiency and Its Determinants in China’s Regional Economies," Economics Discussion / Working Papers, The University of Western Australia, Department of Economics 07-21, The University of Western Australia, Department of Economics.
  13. Chandran, V.G.R. & Tang, Chor Foon, 2013. "The impacts of transport energy consumption, foreign direct investment and income on CO2 emissions in ASEAN-5 economies," Renewable and Sustainable Energy Reviews, Elsevier, Elsevier, vol. 24(C), pages 445-453.
  14. Liu, Hongtao & Polenske, Karen R. & Xi, Youmin & Guo, Ju'e, 2010. "Comprehensive evaluation of effects of straw-based electricity generation: A Chinese case," Energy Policy, Elsevier, Elsevier, vol. 38(10), pages 6153-6160, October.
  15. Baek, Jungho & Koo, Won W., 2008. "A Dynamic Approach to the FDI-Environment Nexus: The Case of China and India," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) 6508, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
  16. Julia Swart & Charles van Marrewijk, 2011. "The Pollution Effects of Mergers and Acquisitions: Asymmetry, Disaggregation, and Multilateralism," Tinbergen Institute Discussion Papers 11-073/2, Tinbergen Institute.
  17. Jing Lan & Makoto Kakinaka & Xianguo Huang, 2012. "Foreign Direct Investment, Human Capital and Environmental Pollution in China," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 51(2), pages 255-275, February.
  18. Jie HE, 2008. "Foreign Direct Investment And Air Pollution In China: Evidence From Chinese Cities," Region et Developpement, Region et Developpement, LEAD, Universite du Sud - Toulon Var, Region et Developpement, LEAD, Universite du Sud - Toulon Var, vol. 28, pages 131-150.
  19. Liu Li & Li Bin, 2010. "Environmental Cost Analysis of the Relocation of Pollution-intensive Industries Case Study: Transfer of Ceramics Industry from Foshan to Qingyuan, Guangdong Province," EEPSEA Research Report, Economy and Environment Program for Southeast Asia (EEPSEA) rr2010081, Economy and Environment Program for Southeast Asia (EEPSEA), revised Aug 2010.
  20. Chakraborty, Debashis & Mukherjee, Sacchidananda, 2010. "Relationship between Trade, Investment and Environment: A Review of Issues," MPRA Paper 23333, University Library of Munich, Germany.
  21. Jie He, 2007. "Is the Environmental Kuznets Curve hypothesis valid for developing countries? A survey," Cahiers de recherche, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke 07-03, Departement d'Economique de la Faculte d'administration à l'Universite de Sherbrooke.
  22. Mukherjee, Sacchidananda & Chakraborty, Debashis, 2013. "Negative Influence of Fiscal Subsidies on Environment: Empirical Evidence from Cross-Country Estimation," Working Papers, National Institute of Public Finance and Policy 13/117, National Institute of Public Finance and Policy.
  23. López, Luis Antonio & Arce, Guadalupe & Zafrilla, Jorge Enrique, 2013. "Parcelling virtual carbon in the pollution haven hypothesis," Energy Economics, Elsevier, Elsevier, vol. 39(C), pages 177-186.

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