The Impact of Foreign Direct Investments on Environmental Quality: The Case of China

Abstract

China was responsible for 24.57% of global fossil fuel consumption and 28.88% of global CO2 emissions in 2018. In addition, China has been the country that most negatively affected the environmental quality, with an increase of 160.19% in 2018 among the BRICS countries in its ecological footprint, which is another indicator of environmental quality. Therefore, it is important to determine the factors affecting environmental pollution in China. This study aims to investigate whether Foreign Direct Investment (FDI) inflows in China from the period 1990-2018 are increasing or decreasing pollution. For this, a model with annual variables of FDI inflow per capita, energy use per capita, and CO2 emissions per capita was used. The existence of a long-term relationship between the variables was investigated with the Fourier ADL method. FMOLS, DOLS, and CCR were used for long-term coefficient estimates. According to the results, FDI inflows and energy consumption reduces CO2 emissions in China. Thus, it has been seen that the pollution Halo hypothesis is valid for China.