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Environmental Policy and the Location of Foreign Direct Investment in China

Author

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  • Christer Ljungwall

    (China Centre for Economic Research)

  • Martin Linde-Rahr

Abstract

This paper introduces an environmental policy variable, i.e. the provincial pollution levy paid by an average firm, and measure its impact on the foreign investors' location decisions over the 1987 to 1998 period. We argue that less developed regions in China are more inclined to sacrifice environmental policies as an instrument to attract foreign direct investment (FDI). National level results show that stringent environmental policies have insignificant effect on foreign investors' location decision, and that transportation, economic growth, and regional location matters more. At the provincial level, stringent environmental policies reduce FDI in the less developed regions.

Suggested Citation

  • Christer Ljungwall & Martin Linde-Rahr, 2005. "Environmental Policy and the Location of Foreign Direct Investment in China," Governance Working Papers 22020, East Asian Bureau of Economic Research.
    • Handle: RePEc:eab:govern:22020
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    Cited by:

    1. Deepak Sethi & William Judge & Qian Sun, 2011. "FDI distribution within China: An integrative conceptual framework for analyzing intra-country FDI variations," Asia Pacific Journal of Management, Springer, vol. 28(2), pages 325-352, June.
    2. Danqing Wang & Zhitao Zhu & Shuo Chen & Xiaowei Rose Luo, 2021. "Running out of steam? A political incentive perspective of FDI inflows in China," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 52(4), pages 692-717, June.
    3. Liangliang Liu & Donghong Ding & Jun He, 2019. "Fiscal Decentralization, Economic Growth, and Haze Pollution Decoupling Effects: A Simple Model and Evidence from China," Computational Economics, Springer;Society for Computational Economics, vol. 54(4), pages 1423-1441, December.
    4. José-Antonio Monteiro & Madina Kukenova, 2008. "Does Lax Environmental Regulation Attract FDI When Accounting For "Third-Country" Effects?," IRENE Working Papers 08-01, IRENE Institute of Economic Research.
    5. Chen, George Shih-Ku, 2009. "Determinants of Taiwanese investment in China: An agglomeration economies-based perspective," MPRA Paper 13894, University Library of Munich, Germany.
    6. Mingquan Li & Qi Wang, 2020. "Does industrial relocation alleviate environmental pollution? A mathematical economics analysis," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 22(5), pages 4673-4698, June.
    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.

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    More about this item

    Keywords

    foreign direct investment; environmental policy;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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