Empirical analysis of the impact of environmental regulation on FDI in China under the background of “double carbon”

Abstract

Since the reform and opening up, China’s economy has developed by leaps and bounds, attracting foreign capital has become an important part of China’s opening up to the outside world, and it plays an important role in promoting the rapid economic development of China. However, the inflow of foreign capital is also a “double-edged sword” for China. While promoting China’s economic progress, it also brings serious environmental problems and aggravates the difficulty of China’s environmental governance work. This paper mainly expounds the impact of environmental regulation on China’s foreign direct investment under the “dual carbon” target, then elaborates the role of environmental regulation on FDI and economic development, and then discusses the impact of the intensity of China’s environmental regulation on China’s foreign direct investment through empirical analysis. In this paper, the comprehensive index of environmental regulation, economic development level, labor cost and infrastructure construction of 30 provinces in China from 2000 to 2020 are included in the theoretical model. Empirical tests on the impact of environmental regulation on attracting foreign direct investment and endogenous tests, robustness tests and regional heterogeneity tests ensure the effectiveness of this study.The conclusion is that the improvement of the comprehensive index of environmental regulation has a certain negative effect on FDI. The smaller the comprehensive index of environmental regulation, the stronger the intensity of environmental regulation,which means that China’s high standards of environmental regulation will increase the inflow of foreign direct investment. This proves that the “pollution paradise” hypothesis does not exist in China, and the “Porter hypothesis” has been verified in this paper.