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VAR analysis of foreign direct investment and environmental regulation: China's Case

Author

Listed:
  • Peng, Wen-Bin
  • Tian, Kun
  • Yian, Yin-Hua
  • Xiang, Guo-Cheng

Abstract

This paper employs impulse response function of VAR model and the estimation variance decomposition method to investigate the two-way dynamic relationship between environmental regulation and FDI during 1985 to 2009. The result of generalized impulse response shows the impact effects of environmental regulation exerting to FDI become less and less in long-term, which verifies “hypothesis of pollution haven”. The inverse U-shape curve of “environmental regulation - FDI” depends on the choice of regulation indicators. Furthermore, the positive impulse response shows the inflows of FDI would cause the deterioration of ecology and the intervene of governments, which gives pressure to the transformation of environmental regulation standard.

Suggested Citation

  • Peng, Wen-Bin & Tian, Kun & Yian, Yin-Hua & Xiang, Guo-Cheng, 2011. "VAR analysis of foreign direct investment and environmental regulation: China's Case," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 5(2), pages 1-10, January.
    • Handle: RePEc:ags:pdcbeh:204191
    DOI: 10.22004/ag.econ.204191
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    References listed on IDEAS

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    1. Ederington Josh & Levinson Arik & Minier Jenny, 2004. "Trade Liberalization and Pollution Havens," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(2), pages 1-24, November.
    2. Sims, Christopher A, 1980. "Macroeconomics and Reality," Econometrica, Econometric Society, vol. 48(1), pages 1-48, January.
    3. Don Fullerton (ed.), 2006. "The Economics of Pollution Havens," Books, Edward Elgar Publishing, number 3962.
    4. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249, September.
    5. Yuquing Xing & Charles Kolstad, 2002. "Do Lax Environmental Regulations Attract Foreign Investment?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(1), pages 1-22, January.
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    Cited by:

    1. Vikash Ramiah & Jacopo Pichelli & Imad Moosa, 2015. "The Effects of Environmental Regulation on Corporate Performance: A Chinese Perspective," Review of Pacific Basin Financial Markets and Policies (RPBFMP), World Scientific Publishing Co. Pte. Ltd., vol. 18(04), pages 1-31, December.

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    More about this item

    Keywords

    Environmental Economics and Policy; Financial Economics; International Relations/Trade;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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