The dynamic linkage between financial inflow and environmental quality: evidence from China and policy options.

Abstract

An inflow of foreign capital into the host country would raise her aggregate capital stock, gross savings and investment, economic growth, and environmental quality. This study scrutinizes the asymmetric impact of FDI and remittances to CO2 emissions in China using annual data from 1981 to 2019, via an asymmetric ARDL approach. The findings show that a positive and negative shock in FDI causes a decrease in CO2 emissions in long run. The findings inferred that a negative shock of remittances has a negative impact on the environment by reducing CO2 emissions in long run.While the impact of a negative shock of remittance is more than the impact of a negative shock of FDI on CO2 emissions in long run in China.Thus, government that policymakers should consider foreign capital as a policy instrument especially designing strategies and policies related to environmental sustainability in China.