Exploring the transition effects of foreign direct investment on the eco-efficiency of Chinese cities: Based on multi-source data and panel smooth transition regression models

Abstract

Foreign direct investment (FDI) has not only been considered to be an important economic engine to promote economic growth in China, but also has played a pivotal role in the ecological environment. Empirically, it may exhibit two conflicting effects, namely, pollution haven effect and pollution halo effect. Hence, it is of great significance of re-examine the effects of FDI on the ecological environment. To this end, we emphasize and identify the transition effects of FDI in the different stages of economic development. In this first step, we employed an extended data envelopment analysis (DEA) method to evaluate the eco-efficiency scores of 284 Chinese cities from 2005 to 2016, based on multi-source data including remote sensing image data and statistical data. In the second step, a panel smooth transition regression (PSTR) model was applied to explore the transition effects of FDI on eco-efficiency. The main findings are as follows. (1) The average eco-efficiency scores presented a U-shaped curve during the sample period. Specifically, it firstly declined from 2005 to 2013, and then the decreasing trend was reversed after 2013. (2) The results of spatial heterogeneity test showed that recently the Low-Low spatial clustering was mainly concentrated on the Central Plain urban agglomeration and the northwestern region while the High-High spatial clustering could be found in three regions, namely the Yangtze River urban agglomeration, the Pearl River Delta urban agglomeration, and the Chengdu-Chongqing urban agglomeration. (3) The results of the PSTR models revealed that FDI exhibited different effects on eco-efficiency in the different stages of economic development. Specifically, in the lower stage of economic level, FDI has a negative effect on eco-efficiency. The main reason could be the pollution haven effect. The rapid economic growth causes the increase in environmental awareness. Hence, when the economic level passed a certain threshold (about 79, 000 RMB), FDI contributed to the improvements of eco-efficiency scores, indicating that it became to exhibit the positive pollution halo effect. To conclude, the transition effects of FDI on eco-efficiency have been confirmed. Besides, we also observed that innovation capacity and education level were the foremost contributors to the enhancement of the eco-efficiency of Chinese cities.