Has the development of FDI and foreign trade contributed to China’s CO2 emissions? An empirical study with provincial panel data

Abstract

Since the reform and opening up in 1978, China’s foreign direct investment (FDI) and foreign trade have grown rapidly. At the same time, China’s carbon dioxide (CO2) emissions surged and China has become the world’s biggest CO2 emitter. The purpose of this paper is to investigate the relationship between FDI, foreign trade and carbon dioxide emissions in China. Using a two-equation model adapted from Halkos and Paizanos (Ecol Econ 91:48–56, 2013), the total impacts of FDI and foreign trade on emission are divided into the direct and indirect impacts and estimated accordingly. The estimation results suggest that the total impact FDI on per capita CO2 emissions is negative. Concretely, the negative direct effect of FDI on carbon emissions dominates the positive indirect effect through FDI’s influence on per capita GDP. However, for foreign trade, both direct and indirect impacts on CO2 emissions are insignificant after taking consideration of potential endogeneity and introducing dynamics.