Can environmental investments benefit environmental performance? The moderating roles of institutional environment and foreign direct investment

Abstract

The contribution of environmental investments (EIs) to environmental performance (EP) is a lively topic for environmental researchers across the world. In spite of huge amount of research, there is still lack of clarity on the moderating factors that affect the role played by EI. In this study, we distinguish EI into pollution control investments (PCIs) and pollution prevention investments (PPIs). We further investigate whether institutional environment and foreign direct investment (FDI) can play their moderating effects both on the relationship between EI and EP and on the relationships between different types of investments and EP or not. The results indicate that EI has a positive effect on EP. More specifically, PPI plays a stronger positive role in EP, but PCI does not have a significant effect on EP. In addition, both institutional environment and FDI can strengthen the positive impact of EI on EP. The increase of EI in regions with better institutional environment or high FDI can lead to greater improvement in EP. These moderating effects of institutional environment and FDI are also confirmed on the link between PPI and EP. In summary, our results reinforce the existing views that EI, and specifically PPI, can improve EP but further contribute to the understanding of the positive moderating roles played by the institutional environment and FDI on the link between EI and EP. K E Y W O R D S environmental investments, environmental performance, foreign direct investment, institutional environment, pollution control investments, pollution prevention investments 1 | INTRODUCTION How to address the environmental problems caused by the economic development is a common problem faced by the whole world. Over the past 40 years, China has made remarkable achievements in economic development. However, the environmental problems caused by the rapid economic development are still serious (Ai, Hu,

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