Ownership and environmental pollution: Firm-level evidence in China

Abstract

This study analyzes the relationship between industrial ownership and environmental performance by investigating whether foreign direct investment (FDI) harms the environment. We investigate the potential differences in pollution costs among foreign-owned firms (FOEs), state-owned firms (SOEs), and privately owned firms (POEs) by using firm-level data in China. Results from the Tobit model indicate that FOEs tend to have relatively low pollution costs in most industries, whereas POEs have relatively high pollution costs in all industries. Moreover, the estimated impact of labor skill on pollution cost varies among different ownerships, with FOEs exhibiting a higher skill level than SOEs and POEs, implying that FOEs are more skill efficient and pollute less than SOEs and POEs. The result indicates that perceived advanced technology from FDI reduces environmental pollution in China, thereby supporting the pollution halo hypothesis.