Foreign Direct Investment’s Impact on China’s Economic Growth, Technological Innovation and Pollution

Abstract

In recent years, China has gradually become one of the countries with the largest levels of foreign direct investment (FDI). FDI has played a significant role in promoting Chinese economic development, and the FDI technology spillover effect is one of the core forces driving China towards reaching new growth milestones. Therefore, due to the country’s interest in development, there is competition for FDI throughout China. However, the existing imperfect environmental protection system cannot prevent FDI from flowing into China’s highly polluting and resource-intensive industrial chain, possibly causing serious environmental problems. Therefore, the topic of properly introducing foreign capital to promote development and effectively end China’s current environmental pollution crisis has become a research focus. To explore FDI’s impact on China’s economic growth, technological innovation, and environmental pollution, we use Chinese provincial panel data for 2004–2016 to construct a dynamic panel simultaneous-equation model. Considering the interrelationships between the equations, we construct economic models of economic growth, technological innovation, and pollution emissions, and incorporate them into the same research system for generalized method of moments (GMM) estimation. Our results show that FDI has a significant and positive direct impact on China’s economic growth and technological innovation, and can furthermore have a significant pull effect on the domestic economy through the backward spillover channel. At the same time, FDI has a direct and significant impact on the increase in regional waste-water discharge, while exhibiting a pollution halo effect on the emission of sulfur dioxide (SO2) and chemical oxygen demand (COD) emissions directly. In addition, we observe “benign feedback mechanism” between technological innovation output and these three types of pollution, namely SO2 emission, COD emissions, and ammonia and nitrogen discharge.

Testing the Environmental Kuznets Curve Hypotheses in Chinese Provinces: A Nexus between Regional Government Expenditures and Environmental Quality

“…The relationship between the fiscal government and environmental quality in the top ten Asian carbon emissions for the period 1981–2018 was analyzed in [ 31 ]; the result shows that positive shock in government expenditure will worsen environmental quality in Malaysia, UAE, Thailand, Indonesia, Turkey, Iran, India, and China, but improve it in Japan. In the same contexte, [ 32 ] applied the GMM method to examine the relationship between SO 2 emissions, COD release, and AN emission pollution factors and local and provincial economic growth in 31 provinces in China for the period 2004 to 2016. The study’s result indicates the positive relationship between economic growth and the three pollutions factors.…”

How does Foreign Direct Investment Influence the Environment in China? Prior and During the Covid-19 Pandemic

“…(2021), Zeng and Zhou (2021) and Xie et al (2020) will be compared and discussed in order to get a full contemporaneous assessment of the topic area. Policy implications and conclusions will be drawn based on the outcome critique of the literature.…”

“…The majority of inward FDI in China has gone into pollution-intensive industries due to the loose environmental regulations and the need for regional development (Wang and Liu, 2019). The impacts on the environment span far and wide with effects on air pollution, soot, dust, wastewater and the ecology to name a few (Ahmad et al 2021, Zeng and Zhou 2021, Xie et al 2021, He, 2006, Liu et al 2018). The environment is arguably priceless and largely severe once damaged.…”

“…Development levels should be examined as causes for different environmental degradation levels across China with further scrutiny into the effects of FDI on the environment depending on the industry is also required, asAhmad et al (2021),Xie et al (2020) andZeng and Zhou (2021) do not explore this. Studies, such asOrlic et al (2018), have focussed on the manufacturing sector, however there is little literature comparing the impact of FDI on the environment among different sector.…”

Performance Dissimilarities in European Union Manufacturing: The Effect of Ownership and Technological Intensity

“…Therefore, it is expected that the development of industries with a strong high-tech orientation will represent a fundamental component of economic advancement in the EU. Moreover, the EU's economies and particularly the eastern ones may use the technological spillover effects induced by foreign direct investments to boost the technological level of local enterprises, which may further foster economic growth [11][12][13]. From this perspective, our paper's genuine contribution is to shed light on the current situation in the manufacturing sector of the EU when the technological level and ownership are considered, which may lay the foundations for a better formulation of industrial policies and of measures towards attracting FDI that are able to support technological advancements.…”