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

Abstract

This study revisits the recent widely ongoing debate over the effects of FDI on the environment in China. Analysis has shown that firms seek to operate in countries with lax environmental standards, namely the PHV. However, the PHL counterargument is also prevalent. This theory stipulates FDI will bring higher environmental management standards and cleaner technologies into the host country. Empirical literature is inconclusive and at times conflicting between some hypotheses therefore this study aims to provide additional clarity on the impact of FDI on the environment in China. This study concludes the existence of both PHV and PHL hypotheses which can be explained by the impact mechanisms of FDI; scale, structural, technique and income effects. The development levels of China using the EKC model hypothesis is used to explain the varying impacts of FDI on the environment. Reflecting on these interesting recent findings in this study, policy implications are discussed and suggestions are provided to improve the impact of FDI on the environment. The future for China is expected to embody an environmental focus in promoting FDI in renewable energy and greener technologies to improve environmental quality.