Foreign Direct Investment and Air Pollution in China: Evidence from the Global Financial Crisis

Abstract

China has been notable for both its rapidly growing foreign direct investment (FDI) and environmental pollution in recent decades. Using the exogenous shock of the 2008 financial crisis as a natural experiment, we construct instrumental variables for FDI by distinguishing between the decrease in FDI in coastal cities and non‐coastal cities. Based on panel data from Chinese prefecture‐level cities, we study the impact of FDI on air pollution in China. The results show that FDI has significantly worsened air quality in China and that the effect is more significant in big cities. FDI in China worsens air quality through increased pollution emissions and resource depletion.

Foreign Direct Investment, Technological Innovations, Energy Use, Economic Growth, and Environmental Sustainability Nexus: New Perspectives in BRICS Economies

“…This study further revealed that technological innovation has an inverse relationship with CO 2 emissions, resulting in improving the environmental quality in the BRICS region. These findings are consistent with the studies in the literature such as Islam et al [91], Jordaan et al [33], and ref. [6], which highlighted that technological innovation in the field of clean and green technology improves environmental quality by reducing CO 2 emissions.…”

“…In line with the pollution haven hypothesis, developed countries participating in FDI typically disseminate technologies that contribute to increasing the release of carbon dioxide emissions [32]. Liu and Zhang [33] analyzed the impact of FDI on the environmental quality of China and found that FDI significantly deteriorated air quality in China. The environmental quality is comparatively worsened in big cities.…”

Asian Economic Integration Report 2023

“…This is consistent with impact assessments in the Association of Southeast Asian Nation (ASEAN) economies, where inward FDI is associated with an overall increase in CO 2 emissions (Baek 2016;Tang and Tan 2015). FDI is also associated with lower environmental standards in SO 2 emissions, air quality, and industrial waste (Cole, Elliott, and Zhang 2011;Liu and Zhang 2022). Other studies have found mixed results or some beneficial effects of FDI on the environment (Jiang et al 2018;Liu, Hao, and Gao 2017;Zhang and Zhou 2016).…”

Exploration on terrorism, ecological footprint and environmental sustainability in countries with the most terrorism antecedent: Accessing evidence from panel fourier analysis

“…The empirical literature on the relationship between FDI inflows and environmental degradation have reached mixed consequences. [ [46] , [47] , [48] , [49] , [50] , [51] , [52] , [53] ], have uncovered that FDI inflows increased the environmental degradation, but [ [54] , [55] , [56] ] discovered that FDI inflows fostered the environmental improvement. However [ 8 , 57 ], have been concluded that the effects of FDIs on environmental degradation are different in the short and long term [ 58 ].…”

“…At the same time, it was concluded that economic development and regulatory quality reduce the impact of FDI inflows on carbon emissions. [ 56 ] Panel data analysis Increases in FDI greatly reduce air quality. It has been observed that the said effect is higher in big cities than in small cities.…”