Abstract
Based on the perspective of regional differences and decentralization, this article investigated the impact of environmental regulations on Taiwanese investment in mainland China from theoretical and empirical perspectives, and analyzed whether local governments are competing to lower environmental standards to attract Taiwanese investment so as to maintain their comparative advantages. This paper constructed a theoretical model through a two-stage game model. With the panel data of each province in Mainland China from 2006 to 2016, the theoretical propositions were empirically tested through the system GMM estimation method. The results show that the environmental regulation policies adopted by the local governments in the mainland have a significant inhibitory effect on the investment volume of Taiwan-funded enterprises, and the interaction between environmental regulations and local tax burden levels also has a negative effect on Taiwanese investment. Local governments have the motive to reduce environmental regulations to attract investment.
Highlights
Introduction and Description of Related VariablesExplanatory variables are the main factors that affect Taiwanese investment in mainland China
ERit is the environmental regulations of the i-th province, L2 Taxit indicates that the tax burden level lags behind the second period, and βγ is the control variable
This article attempted to analyze the role of regional environmental regulations in mainland China in the location choice of Taiwan-funded enterprises
Summary
Since Taiwanese-invested enterprises invested in the mainland of China in the late. 1980s, the vast market potential, cheap labor costs, and leap-forward development of the infrastructure in the mainland have been favored by Taiwanese-invested enterprises. The central government prefers to support low-carbon emission industries to implement sustainable development strategies, while local governments will compete by lowering regional environmental regulatory standards so as to attract more foreign investment, resulting in disrupted market mechanisms and causing environmental degradation (Ollivier, 2016; Fischer and Springborn, 2011) [7,8]. This provides a great possibility for local governments to independently adjust the implementation of environmental regulations. Detailed research conclusions are drawn by empirically testing the impact of environmental regulations on Taiwanese investment in mainland China and the investment potential of different regions
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