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Economic and environmental impacts of foreign direct investment in China: A spatial spillover analysis

Author

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  • Huang, Jianhuan
  • Chen, Xudong
  • Huang, Bihong
  • Yang, Xiaoguang

Abstract

This paper studies the economic and environmental impacts of foreign direct investment (FDI) in China. First, we build a simple theoretical model to predict the overall beneficial effects of FDI, and also find that a stronger sense of “environmental citizenship” by the FDI firm is associated with lower pollution and lower emission intensity in the host region. For empirical analysis, we use Spatial Durbin Model (SDM) to address the regional spillovers of FDI and pollution in China, and confirm the beneficial impacts of FDI both environmentally and economically. We also find that FDI from Hong Kong, Macau, and Taiwan (HMT) that is assumed to exhibit a stronger sense of environmental citizenship due to its closer ties with mainland China, significantly improves the host region's environmental outcome but has no measurable effects on its economic growth; in contrast, FDI from other origins significantly promotes the economic growth of the host economy although it has no measurable impacts on the environmental outcome.

Suggested Citation

  • Huang, Jianhuan & Chen, Xudong & Huang, Bihong & Yang, Xiaoguang, 2017. "Economic and environmental impacts of foreign direct investment in China: A spatial spillover analysis," China Economic Review, Elsevier, vol. 45(C), pages 289-309.
    • Handle: RePEc:eee:chieco:v:45:y:2017:i:c:p:289-309
    DOI: 10.1016/j.chieco.2016.03.006
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    More about this item

    Keywords

    Foreign direct investment; Spatial spillover effect; Environmental outcome; Economic growth; Environmental citizenship;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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