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An empirical model of the environmental effect of FDI in host countries: Analysis based on Chinese panel data

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  • Yang, Boqiong
  • Chen, Jianguo
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    Abstract

    From the 1970's, Foreign Direct Investment (FDI) flowed into host countries. With the development of economy in host countries the environment deteriorated. The overall goal of this paper is to estimate whether the impacts of FDI positive or negative on environment in host countries. To meet this overall goal, it is constructed a simultaneous system with data of 28 provinces in China (1992-2008). This system supposes the pollution indicators to be determined by economic scale, industrial composition and pollution density of a province, in which pollution density is created to estimate the environmental effect of FDI more exactly than traditional technological character. Also the domestic and foreign capital is tried to distinguish to make the pollution source clear. Based on a panel data of 28 provinces (1992-2008) with the three-stage least squares (3sls) estimator, the results of the system show that with the domestic investment, the environmental effect is positive, which means that FDI increases pollution emission. The direct environmental effect of FDI, which does not include domestic investment, is different decided by various pollution indicators. --

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    Bibliographic Info

    Paper provided by Leib­niz Institute of Agricultural Development in Central and Eastern Europe (IAMO) in its series IAMO Forum 2011: Will the "BRICs Decade" Continue? – Prospects for Trade and Growth with number 3.

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    Date of creation: 2011
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    Handle: RePEc:zbw:iamo11:3

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    Keywords: FDI; pollution emission; host countries;

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    1. Cole, Matthew A. & Elliott, Robert J.R. & Zhang, Jing, 2009. "Growth, Foreign Direct Investment and the Environment: Evidence from Chinese Cities," Proceedings of the German Development Economics Conference, Frankfurt a.M. 2009 41, Verein für Socialpolitik, Research Committee Development Economics.
    2. Koen De Backer & Leo Sleuwaegen, 2003. "Does Foreign Direct Investment Crowd Out Domestic Entrepreneurship?," Review of Industrial Organization, Springer, Springer, vol. 22(1), pages 67-84, February.
    3. Beata K. Smarzynska, 2003. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers through Backward Linkages," William Davidson Institute Working Papers Series 548, William Davidson Institute at the University of Michigan.
    4. Glass, Amy Jocelyn & Saggi, Kamal, 1998. "International technology transfer and the technology gap," Journal of Development Economics, Elsevier, Elsevier, vol. 55(2), pages 369-398, April.
    5. Jie He, 2011. "Pollution haven hypothesis and Environmental impacts of foreign direct investment: The Case of Industrial Emission of Sulfur Dioxide (SO2) in Chinese provinces," Working Papers, HAL halshs-00564699, HAL.
    6. Johnson, Andreas, 2006. "The Effects of FDI Inflows on Host Country Economic Growth," Working Paper Series in Economics and Institutions of Innovation, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies 58, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    7. Wheeler, David, 2001. "Racing to the bottom : foreign investment and air pollution in developing countries," Policy Research Working Paper Series 2524, The World Bank.
    8. Laura Alfaro & Andrés Rodriguez-Clare, 2004. "Multinationals and Linkages: An Empirical Investigation," JOURNAL OF LACEA ECONOMIA, LACEA - LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION.
    9. Markusen, James R. & Venables, Anthony J., 1999. "Foreign direct investment as a catalyst for industrial development," European Economic Review, Elsevier, Elsevier, vol. 43(2), pages 335-356, February.
    10. Susmita Dasgupta & Benoit Laplante & Hua Wang & David Wheeler, 2002. "Confronting the Environmental Kuznets Curve," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 16(1), pages 147-168, Winter.
    11. Koen de Backer, 2002. "Does foreign direct investment crowd out domestic entrepreneurship?," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 618, Department of Economics and Business, Universitat Pompeu Fabra.
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