The Impact of Foreign Direct Investment on Environmental Pollution in China: Corruption Matters

Abstract

This research investigates the interaction effect between corruption and foreign direct investment (FDI) on environmental pollution by applying the spatial econometric model to the panel data of China’s 29 provinces from 1994 to 2015 and analyzes the differences between China’s eastern, central and western regions. Results show that (a) FDI inflow deteriorates the environmental quality, validating the pollution haven hypothesis (PHH); (b) by weakening the environmental standards, corruption enables the inflow of low-quality FDI, weakens the spillover effect of FDI and indirectly causes further environmental pollution; (c) the interaction effect between corruption and FDI on environmental pollution is less significant in the eastern region than in the central and western regions.

Does foreign direct investment matter for environmental innovation in African economies?

“…Thus, less efficient domestic firms are encouraged to adopt innovative environmentally efficient practices and production techniques to remain competitive (Cole et al 2017 ; Opoku et al 2021 ). But it is equally argued that foreign investment could worsen environmental quality and hinder sustainable development in these economies (Wang and Chen 2014 ; Shahbaz et al 2015 , Wang et al 2020 ). Pollution-intensive industries, in an attempt to avoid the stringent environmental policies in the home countries, outsource the dirty part of their production process or relocate to less stringent economies, such as developing countries some of which are resources-rich.…”

The Environmental Effects of FDI

“…More recently, the effect of FDI on the environment has been examined by Wang et al (2020), Sabir et al (2020), Pavlovic et al (2020), and by Demena and Afesorgbor (2020). Wang et al (2020) examine the case of China and find that FDI inflows lead to a deterioration of environmental quality, thus validating the pollution haven hypothesis. Sabir et al (2020) investigate the effect of FDI on the environment in South Asian countries and find evidence for the environmental Kuznets curve and for a negative effect of FDI on the environment.…”

Nonlinear Influence of Chinese Real Estate Development on Environmental Pollution: New Evidence from Spatial Econometric Model

“…Among them, most studies are based on many key factors affecting environmental pollution, and they study their path and impact mechanism on environmental pollution. The context of the studies refers to economic growth [ 25 , 26 , 27 ], foreign trade [ 28 , 29 , 30 , 31 , 32 ], industrial structure [ 33 ], financial development level [ 34 ], traffic conditions [ 35 ], etc.…”