Effect of environmental regulation policy tools on the quality of foreign direct investment: An empirical study of China

Abstract

The rapid growth of foreign investment is a double-edged sword, which not only drives China’s rapid economic development, but also aggravates China’s energy shortage and environmental pollution. Chinese government has strengthened environmental regulations with the intention of restricting the entry of foreign investment, improving the quality of foreign direct investment (FDI). However, the effect of environmental regulation on the quality of FDI has not been carefully examined yet. This study constructs a panel model and uses the panel data of 30 provinces in China from 2009 to 2018 to scrutinize the effect of different types of environmental regulation policies on the quality of FDI. The results show that the strengthening of environmental regulation policies can improve the quality of FDI and avoid making China a “pollution paradise” for FDI. There are significant differences in the effects of different types of such policies on the quality of FDI; the type of administrative supervision and social participation policies play positive roles in improving the quality of FDI. There are also significant differences in the strategies for attracting foreign investment among different regions, as well as in the focuses of their environmental regulation objectives. Therefore, for environmental regulation policies to play a more positive role in promoting the quality of FDI and the high-quality development of the national economy, this study suggests that it is necessary to further implement the policy of opening up to the outside world, optimise foreign investment structures, deepen opening up to the outside world, optimise the structure of foreign investment, deepen the reform of the environmental supervision structure, tighten the law enforcement of environmental protection, seek accurate environmental regulation based on the realities of regional foreign investment development, take multiple measures to improve the business environment to promote the quality and efficiency of foreign investment, and so on.