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The Impact of Foreign Direct Investment (FDI) on the Environment: Market Perspectives and Evidence from China

Author

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  • Jiajia Zheng

    (School of Business, Henan University, Kaifeng 475004, China)

  • Pengfei Sheng

    (School of Economic, Henan University, Kaifeng 475004, China)

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 CO 2 emissions during the market-oriented reform. The results are as follows. Firstly, FDI directly promotes China’s CO 2 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 CO 2 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 CO 2 emissions. Provinces in the eastern area generally evidenced higher market development and lower CO 2 emissions from FDI, while four provinces in west area evidenced both lower market development and higher CO 2 emissions from FDI.

Suggested Citation

  • Jiajia Zheng & Pengfei Sheng, 2017. "The Impact of Foreign Direct Investment (FDI) on the Environment: Market Perspectives and Evidence from China," Economies, MDPI, vol. 5(1), pages 1-15, March.
    • Handle: RePEc:gam:jecomi:v:5:y:2017:i:1:p:8-:d:92253
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