Environmental spillovers in international joint ventures: Evidence from Chinese industrial firms

Abstract

Investing in international joint ventures (IJVs) is an important way for Chinese investors to establish partnerships with foreign investors. However, the environmental spillovers in this process have yet to be evaluated in the existing literature. Employing firm-level data with nearly 410,000 observations of Chinese industrial firms from 1999 to 2009, this paper constructs a quasi-natural experiment to analyze the effects of transitioning from being non-IJV partners to IJV partners on firm-level pollution emissions. A difference-in-differences model is used to alleviate potential endogeneity problems. Our results indicate that becoming an IJV partner reduces a firm's pollution emissions. The mechanism analysis suggests that knowledge spillovers, the increase in clean fuel usage, and the decline in pollution emission intensity could lead to a pollution reduction effect, while the expansion of industrial output could also increase pollution emissions. The heterogeneity analysis shows that the absorptive capacity of technology, ownership, the level of industrial pollution, and regional resource density influence the effect of environmental spillovers in IJVs.