Does FDI Bring Environmental Knowledge Spillovers to Developing Countries? The Role of the Local Industrial Structure

Abstract

This paper examines the environmental knowledge externalities of FDI within and across cities in an emerging economy context. It argues that the extent of these environmental externalities is contingent upon local industrial agglomeration. Using a panel dataset of 280 Chinese prefectural cities from 2003 to 2012, we employ a spatial economic approach. Although limited to evidence from soot and SO 2 pollutants, our results suggest that FDI brings overall positive environmental knowledge externalities to a region, and also spillovers to nearby regions. Specialised cities may lock into a particular technological path, attenuating the absorption and diffusion of a variety of FDI environmental knowledge. Conversely, diversified cities promote cross-fertilisation of environmental knowledge and mitigate local pollution intensity at the aggregated city level. This study adds to the literature by highlighting the importance of considering both the spatiality of FDI and industrial structure in understanding FDI environmental knowledge spillovers.

Spatial Heterogeneity Influences of Environmental Control and Informal Regulation on Air Pollutant Emissions in China

“…PSPE , PPTC , and SEE indicate the intensity of air pollution control policies, the public environmental participation, and the media environmental monitoring, respectively. is a collection of the control variables mainly expressed from STIRPAT model, including economic development [ 31 ], industrial structure [ 5 ], S&T expenditure [ 32 ], energy consumption [ 33 ], population density [ 31 ], and the degree of opening-up reflected by foreign direct investment (FDI) [ 34 ]. The details of the variables can be seen from Section 4 below.…”

“…The spatial relationship is a known phenomenon in ecological research and refers to the relationship between certain variables observed in different regions [ 5 ]. As environmental pollution has spatial spillover effects, air pollution in one region is not independent of other regions.…”

“…The industrial layout and industrial development scale are closely related to environmental quality. Different industrial structures correspond to different pollution discharge structures [ 5 ]. We use the industrial structure ( IND ) variable, calculated as the proportion of the secondary industry’s GDP to the total GDP, to control the impact of regional industrialization development on air pollutant emissions.…”

“…Spatial heterogeneity plays an important role in environmental regulation in China. It has been noted that China’s air pollution patterns have obvious spatial characteristics [ 5 ]. To date, most empirical studies have analyzed the impact of air pollution control policy on pollution [ 6 ], and the impact of informal environmental regulation on pollution [ 7 ].…”

Geographical Concentration of Knowledge- and Technology-Intensive Industries and City Innovation in China

“…Consistent with MAR's externalities, many studies have confirmed that industry specialisation is more beneficial to innovation intensity (INA) than industry diversity [31][32][33]35,49,50], which is especially true for technology-intensive manufacturing [39,41,51]. MAR externalities argue that the geographical proximity of similar industries dramatically facilitates the sharing of infrastructure, intermediate inputs, and the labour market, subsequently fostering knowledge spillover.…”