The impact of FDI on air quality: evidence from China
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. JEL classification: O13, O18, Q25, O53, R1, F23
Volume (Year): 4 (2011)
Issue (Month): 2 (June)
|Contact details of provider:|| Web page: http://www.emeraldinsight.com|
|Order Information:|| Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK|
Web: http://www.emeraldinsight.com/jcefts.htm Email:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Grossman, G.M & Krueger, A.B., 1991.
"Environmental Impacts of a North American Free Trade Agreement,"
158, Princeton, Woodrow Wilson School - Public and International Affairs.
- Gene M. Grossman & Alan B. Krueger, 1991. "Environmental Impacts of a North American Free Trade Agreement," NBER Working Papers 3914, National Bureau of Economic Research, Inc.
- Grossman, Gene & Krueger, Alan B, 1992. "Environmental Impacts of a North American Free Trade Agreement," CEPR Discussion Papers 644, C.E.P.R. Discussion Papers.
- Hua Wang & Yanhong Jin, 2007.
"Industrial Ownership and Environmental Performance: Evidence from China,"
Environmental & Resource Economics,
European Association of Environmental and Resource Economists, vol. 36(3), pages 255-273, March.
- Hua Wang & Yanhong Jin, 2002. "Industrial ownership and environmental performance : evidence from China," Policy Research Working Paper Series 2936, The World Bank.
- Gene M. Grossman & Alan B. Krueger, 1994.
"Economic Growth and the Environment,"
NBER Working Papers
4634, National Bureau of Economic Research, Inc.
- 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.
- Brian R. Copeland & M. Scott Taylor, 2003.
"Trade, Growth and the Environment,"
NBER Working Papers
9823, National Bureau of Economic Research, Inc.
- 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.
- John Whalley & Xian Xin, 2006.
"China's FDI and Non-FDI Economies and the Sustainability of Future High Chinese Growth,"
NBER Working Papers
12249, National Bureau of Economic Research, Inc.
- 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.
- 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.
- Susmita Dasgupta & Benoit Laplante & Hua Wang & David Wheeler, 2002. "Confronting the Environmental Kuznets Curve," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 147-168, Winter.
- 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.
- Selden Thomas M. & Song Daqing, 1994. "Environmental Quality and Development: Is There a Kuznets Curve for Air Pollution Emissions?," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 147-162, September.
- 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.
When requesting a correction, please mention this item's handle: RePEc:eme:ceftpp:v:4:y:2011:i:2:p:81-98. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman)
If references are entirely missing, you can add them using this form.