Does the Carbon Emission Trading Policy Promote Foreign Direct Investment?: A Quasi-Experiment From China

Abstract

As an important policy to promote global energy transition and carbon emission reduction, does the carbon emission trading policy help promote foreign direct investment inflows, thus alleviating the contradiction between environment and economic development? Based on the “OLI paradigm,” by using the data of China’s 30 provinces from 2007 to 2016 and taking China’s pilot implementation carbon emission transaction policy in 2013 as the natural experiment, so as to construct a differences-in-differences model, this study empirically analyzed the impact of carbon emission transaction policies on foreign direct investment and conducted an in-depth analysis and discussion on related heterogeneity. The empirical results show that 1) there is a positive correlation between the carbon emission trading policy and foreign direct investment; 2) the results of heterogeneity analysis show that the effect of carbon emission trading policy on the increase in FDI is more significant in the areas with a stronger environmental regulation, a higher degree of marketization, and low energy consumption. The conclusions of this study enrich the analysis of the effectiveness of government environmental policies from the perspective of both environment and economic development and provide relevant policy enlightenment for developing countries in environmental regulation and attracting foreign direct investment.Systematic Review Registration: [website], identifier [registration number].

Do environmental quality, financial inclusion, and good governance ensure the FDI sustainably in Belt and Road countries? Evidence from an application of CS-ARDL and NARDL

“…The positive association between carbon emission and FDI indicates the "pollution haven" hypothesis that foreign investors prefer an environmentally less-regulated economy for their capital flows because clean energy integration in the production process incurs additional investment costs. The study's findings are in line with the existing literature, for instance, Pingfang et al (2011), Shao et al (2022, but contradict the study findings of Yüksel et al (2020) for G7 countries and those of Shao et al (2022) in China.…”

Asian Economic Integration Report 2023

“…Measures of environmental policy are also important at the domestic level. These include, for example, participation in international environmental treaties or carbon emission systems (Shao, Yu, and Chen 2022;Xu, Wu, and Shi 2021;Yu and Li 2020)…”

“…Most evidence from the PRC favors the pollution haven hypothesis, as FDI inflows tend to be located in the PRC regions with weaker environmental regulations (Cheng, Li, and Liu 2018;He 2006;Lin and Sun 2016;Zhang and Fu 2008) and tougher regulations reduce the probability of entry of foreign enterprises (Li, Lin, and Wang 2022). Some research suggests little effect from environmental regulations on FDI, as in Japan (Elliott and Shimamoto 2008) or even an increase in inward FDI following stricter regulations (Shao, Yu, and Chen 2022).…”

“…evidence of the pollution haven hypothesis for asia's outward investment is more mixed� While increasing environmental stringency in home economies could lead to FDI relocation or firm exit, the evidence for Asia is limited (Greaney, Li, and Tu 2017;Kirkpatrick and Shimamoto 2008). More recent studies find a positive effect on the probability of foreign firms to stay once environmental regulations are tightened (Shao, Yu, and Chen 2022;Tai and Yan 2022).…”

Has heterogeneous environmental regulation promoted a cleaner transition in China's energy consumption structure?

“…It has been proved theoretically and empirically that market-incentivised environmental regulation effectively reduces carbon dioxide emissions (Hu et al, 2020;Chang et al, 2023). It is also able to have an impact on macroareas such as low-carbon development of the economy (Khaddage-Soboh et al, 2023;Wang et al, 2019), optimisation of industrial structure (Zhou et al, 2022), regional employment scale (Yang et al, 2020), poverty alleviation of the rural population (Zhang and Zhang, 2020), foreign direct investment (Shao et al, 2022), technological innovation and innovation spillovers of enterprises (Yang et al, 2023;Yu et al, 2023), enterprise total factor productivity (Wu and Wang, 2022), enterprise value (Luo et al, 2023), enterprise financial performance (Yu et al, 2022), and other micro subjects to have a positive impact.…”