Abstract
Foreign direct investment (FDI) may have a positive effect on the level of pollution in host countries, as described by the pollution haven hypothesis (PHH). However, this kind of effect may depend on the economic conditions in host countries. In this study, we conduct research on the FDI’s effect on China’s CO2 emissions during the market-oriented reform. The results are as follows. Firstly, FDI directly promotes China’s CO2 emissions. Secondly, with market-oriented reform, this positive effect from FDI is lowering year by year, which indicates that the market-oriented reform could alleviate the positive effect of FDI on China’s CO2 emissions. Thirdly, as China’s market-oriented reform was implemented gradually from experimental zones to the whole country, regional market development is uneven, and as such so is FDI’s effect on local CO2 emissions. Provinces in the eastern area generally evidenced higher market development and lower CO2 emissions from FDI, while four provinces in west area evidenced both lower market development and higher CO2 emissions from FDI.
Highlights
Since the introduction of China’s “Reform and Opening Up” policy, the Chinese government has put great effort into market-oriented reform and the “go out and bring in” strategy
The purpose of this study is to examine whether the market-oriented reform plays a decisive role in foreign direct investment (FDI)’s effect on China’s CO2 emissions
The results show that the coefficient is insignificantly negative, especially after we added the interaction term of “fdi” and “marketization level”
Summary
Since the introduction of China’s “Reform and Opening Up” policy, the Chinese government has put great effort into market-oriented reform and the “go out and bring in” strategy. According to the United Nations Conference on Trade and Development (UNCTAD), China brought in more than 100 billion dollars from the outside world in 2014, compared to only 57 million dollars in 1980, during the early years of the reform. There is little disagreement that FDI is an engine and a kind of catalyst for host countries in economic development. For those countries in urgent need of economic development, low standards of environmental regulations, cheap resources and energy are always used as incentives to attract foreign investment. Foreign investment brings in a series of environmental problems. For China, the largest developing country in the world, the standards of environmental regulations are still low or even rare in some aspects, compared with those in developed countries. Whether, and to what extent, the entry of FDI is accompanied by a series of negative environmental problems is an important question yet to be answered
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