Will bad air quality affect the siting of foreign-invested manufacturing enterprises? The evidence from China

Abstract

ABSTRACT Albeit notably increasing studies dedicated to investigating the impact of air pollution on enterprises’ productivity and profit, few have oriented onto explicitly probing how the enterprises, particularly those foreign-invested firms, made their location choices concerning air quality. Accordingly, this study contributes to explain the impact of air pollution on the site selection of foreign-invested manufacturing enterprises with a unique firm-level dataset of China. The study also discloses the heterogeneity of air pollution effects attributable to enterprises’ various features regarding ownership property, host country, industrial classification, and investment scale. Our result justifies a statistically significant and negative impact of air pollution on the siting of foreign-invested manufacturing enterprises. The heterogeneous effects of air pollution manifest that the location choice would be remarkably more sensitive for the sole-venture enterprises, and for those headquartered in developed countries, engaged in high-technology industries, and at small and medium investment scales. The study finds that the siting of small-scale firms in high-technology sectors appears to be the most sensitive to air pollution, signifying that air pollution severity would be a pivotal factor pushing aside high-quality foreign-invested enterprises to invest in polluted areas in general.