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The impact of FDI on air quality: evidence from China

Author

Listed:
  • Berna Kirkulak
  • Bin Qiu
  • Wei Yin

Abstract

Purpose - This paper seeks to examine the impact of foreign direct investments (FDI) on air pollution in China using 286 cities from 2001 to 2007. It is a particular interest of this paper to observe the relationship between FDI and air pollution in particular after China joined to World Trade Organization in 2001. This paper provides a better understanding of economic growth and foreign investment while maintaining a sustainable environment. In order to achieve this task, this paper tests whether or not FDI inflow has impact on environmental deterioration in particular on air quality. Design/methodology/approach - Since the data are both cross-sectional and time series, panel data analyses (fixed effects and random effects) were applied. In order to detect the presence of serial correlation of error term, Durbin-Watson test was used. As serial correlation problem was determined, generalized least square (GLS) using Ar(1) model was used to overcome serial correlation. Findings - The findings show that FDI has no negative impact on the air quality in China. Contrary to expectations, the presence of FDI reduces the air pollution. This result can be attributed by the role of FDIs in the economy that FDIs are perceived as main sources of advanced technology in China. One of the striking findings of the paper shows that FDI has no significant impact on air quality in the central and western cities. The reason is that low level of FDI inflows to cities located in the Center and West. The findings are robust under both panel data (fixed effects and random effects) and GLS estimations. Practical implications - The results provide a wide array of information useful to practitioners, policy makers. Since the paper shows that FDI has no negative impact on the air quality, this result is crucial in attracting FDI to China. Originality/value - This paper provides the largest sample including 286 cities all over China from 2001 to 2007. Considering the distribution of FDI across China, the sample is divided into three regions. Making sub-samples of the FDI distribution allowed us to examine how the impact of FDI differs on air quality in the East, Central and West regions.

Suggested Citation

  • Berna Kirkulak & Bin Qiu & Wei Yin, 2011. "The impact of FDI on air quality: evidence from China," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 4(2), pages 81-98, June.
  • Handle: RePEc:eme:ceftpp:v:4:y:2011:i:2:p:81-98
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    References listed on IDEAS

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    1. Fan, Joseph P.H. & Morck, Randall & Xu, Lixin Colin & Yeung, Bernard, 2009. "Institutions and Foreign Direct Investment: China versus the Rest of the World," World Development, Elsevier, vol. 37(4), pages 852-865, April.
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    8. Wang, Hua & Wheeler, David, 2003. "Equilibrium pollution and economic development in China," Environment and Development Economics, Cambridge University Press, vol. 8(03), pages 451-466, July.
    9. WHALLEY, John & XIN, Xian, 2010. "China's FDI and non-FDI economies and the sustainability of future high Chinese growth," China Economic Review, Elsevier, vol. 21(1), pages 123-135, March.
    10. Yao, Shujie & Wei, Kailei, 2007. "Economic growth in the presence of FDI: The perspective of newly industrialising economies," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 211-234, March.
    11. Honglin Zhang, Kevin, 2005. "Why does so much FDI from Hong Kong and Taiwan go to Mainland China?," China Economic Review, Elsevier, vol. 16(3), pages 293-307.
    12. Yuqing Xing, 2008. "FDI in China: Facts and Impacts on China and the World Economy," Working Papers EMS_2008_03, Research Institute, International University of Japan.
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    Citations

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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. Pasquale Pazienza, 2015. "The Environmental Impact of the FDI Inflow in the Transport Sector of OECD Countries and Policy Implications," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 21(1), pages 105-116, March.
    3. Ren, Shenggang & Yuan, Baolong & Ma, Xie & Chen, Xiaohong, 2014. "The impact of international trade on China׳s industrial carbon emissions since its entry into WTO," Energy Policy, Elsevier, vol. 69(C), pages 624-634.
    4. repec:spr:nathaz:v:91:y:2018:i:2:d:10.1007_s11069-017-3148-0 is not listed on IDEAS
    5. Tang, Chor Foon & Tan, Bee Wah, 2015. "The impact of energy consumption, income and foreign direct investment on carbon dioxide emissions in Vietnam," Energy, Elsevier, vol. 79(C), pages 447-454.
    6. Al-mulali, Usama & Foon Tang, Chor, 2013. "Investigating the validity of pollution haven hypothesis in the gulf cooperation council (GCC) countries," Energy Policy, Elsevier, vol. 60(C), pages 813-819.
    7. repec:kap:iaecre:v:21:y:2015:i:1:p:105-116 is not listed on IDEAS

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