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Pollution abatement cost savings and FDI inflows to polluting sectors in China

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  • DI, WENHUA

Abstract

This paper uses a nested logit model to examine whether potential pollution abatement cost savings adjusted by institutional and socio-economic conditions influence the location choices of Foreign Direct Investment (FDI) among Chinese provinces. It incorporates individual polluting firms’ characteristics instead of looking only at location attributes. The results show that (i) FDI firms in polluting industries tend to locate in provinces with higher potential abatement costs savings adjusted for local environmental regulation; (ii) relatively dirtier firms are more likely to locate in less developed provinces or provinces with fewer similar polluting industries; (iii) firms in pollution-intensive industries are more sensitive to regulation and development status than firms in non-polluting industries; and (iv) firms tend to locate in provinces where they have more bargaining power with local governments. These findings suggest the existence of domestic pollution havens in China.

Suggested Citation

  • Di, Wenhua, 2007. "Pollution abatement cost savings and FDI inflows to polluting sectors in China," Environment and Development Economics, Cambridge University Press, vol. 12(06), pages 775-798, December.
  • Handle: RePEc:cup:endeec:v:12:y:2007:i:06:p:775-798_00
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    Cited by:

    1. Chen, Qiu & Maung, Min & Shi, Yulin & Wilson, Craig, 2014. "Foreign direct investment concessions and environmental levies in China," International Review of Financial Analysis, Elsevier, vol. 36(C), pages 241-250.
    2. Jiajia Zheng & Pengfei Sheng, 2017. "The Impact of Foreign Direct Investment (FDI) on the Environment: Market Perspectives and Evidence from China," Economies, MDPI, Open Access Journal, vol. 5(1), pages 1-15, March.
    3. Perrings, Charles, 2014. "Environment and development economics 20 years on," Environment and Development Economics, Cambridge University Press, vol. 19(03), pages 333-366, June.
    4. repec:wsi:wschap:9789813141094_0009 is not listed on IDEAS
    5. Lee, Sanghoon & Oh, Dae-Won, 2015. "Economic growth and the environment in China: Empirical evidence using prefecture level data," China Economic Review, Elsevier, vol. 36(C), pages 73-85.
    6. Judith M. Dean & Mary E. Lovely & Hua Wang, 2017. "Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China," World Scientific Book Chapters,in: International Economic Integration and Domestic Performance, chapter 9, pages 155-167 World Scientific Publishing Co. Pte. Ltd..
    7. Liguo Lin & Wei Sun, 2016. "Location choice of FDI firms and environmental regulation reforms in China," Journal of Regulatory Economics, Springer, vol. 50(2), pages 207-232, October.
    8. Kukenova, Madina & Monteiro, Jose-Antonio, 2008. "Does Lax Environmental Regulation Attract FDI when accounting for "third-country" effects?," MPRA Paper 11321, University Library of Munich, Germany, revised Sep 2008.
    9. Yang, Boqiong & Brosig, Stephan & Chen, Jianguo, 2013. "Environmental Impact of Foreign vs. Domestic Capital Investment in China," EconStor Open Access Articles, ZBW - German National Library of Economics, pages 245-271.
    10. Jing Lan & Makoto Kakinaka & Xianguo Huang, 2012. "Foreign Direct Investment, Human Capital and Environmental Pollution in China," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(2), pages 255-275, February.
    11. Grégoire Garsous & Tomasz Kozluk, 2017. "Foreign Direct Investment and The Pollution Haven Hypothesis: Evidence from Listed Firms," OECD Economics Department Working Papers 1379, OECD Publishing.

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