Impact of Two-Way FDI on China’s Environmental Quality: The Perspective of Environmentally Cleaner Production and End Treatment

Abstract

While the rapid development of two-way foreign direct investment (FDI) has boosted China's economic growth, its impact on environmental quality is uncertain. Based on provincial panel data from China covering the period from 2002 to 2020, this paper proposes an environmental quality assessment index system for China from two aspects: environmentally cleaner production and environmental end treatment. The comprehensive environmental quality index (EQI), environmentally cleaner production index (EPI), and environmental end treatment index (ETI) were all measured, with the geographic information system tool and Dagum Gini coefficient used to analyse the indicators' differences using a system-generalised method-of-moments (SYS-GMM) estimation to study the impact of two-way FDI on environmental quality in various regions across China. The results demonstrate that during the sample period, inward FDI positively impacted environmental quality and cleaner production but had a negative impact on environmental end treatment. Outward FDI significantly promoted EQI, EPI, and ETI, and the interaction between inward FDI and outward FDI positively impacted environmental quality and environmentally cleaner production, while it negatively impacted environmental end treatment. This indicates that under two-way FDI, China's relationship with environmental quality has gradually evolved from 'pollution first and then treatment' to 'green development of cleaner production'.