Impact of foreign direct investment on the haze pollution in various cities: Evidence from China

Abstract

AbstractThis study employs panel data of 270 Chinese cities at the prefecture level or above from 2004 to 2018 to examine the impact of foreign direct investment (FDI) on urban haze pollution and its mechanism. The heterogeneity in FDI's impact in cities with different size, development level, government regulation level, the opening degree of the market, and government capacity is also investigated. The results show FDI exacerbates haze pollution in Chinese cities. At the mean value of the samples, a 1% rise in FDI would increase PM2.5 by approximately 0.0073%. These results remain consistent after we experiment several robustness checks. Then, analysis of mechanism suggests that FDI impacts PM2.5 via scale effect, composition effect and technological innovation effect. Finally, heterogeneity analysis further demonstrates haze pollution is more sensitive to the change of FDI in cities with low development level, cities with low market openness, and cities with weak government capacity. Further, it is worth stressing that FDI increases haze pollution in small‐, medium‐, and large sized cities, while it reduces haze pollution in mega cities and above. Moreover, the scale effect, composition effect, and technology effect of FDI in different cities are varied. Policy implications of our work are discussed.