An empirical model on the impact of foreign direct investment on China’s environmental pollution: analysis based on simultaneous equations

Abstract

This paper analyses the link between foreign direct investment (FDI) and economic growth and their subsequent impact on environmental pollution in China. The simultaneous equation method was used with data from 31 provinces in China covering the period between 1995 and 2016. The findings indicate that the effect of FDI on economic growth, industrial structure, and environmental pollution control positively impacts on China’s industrial pollution control and environmental conditions, implying that China should encourage foreign capital investments that come with advanced production technology and green production processes. This will enhance efficient resource utilization, adherence to environmental standards, and ensuring sustainable economic development.

This is a preview of subscription content, log in to check access.

References

  1. Albert E (2016) China’s Environmental Crisis. Retrieved from https://www.cfr.org/backgrounder/chinas-environmental-crisis. Accessed Oct 2018

  2. Asghari M (2012) What is “Race-to-the-Bottom” Effect on FDI Inflow? Iranian Economic Review (IER) 17(2):76–93

    Google Scholar 

  3. Ayamba EC, Chen H, Udimal TB, Osei A (2018) Foreign direct investment, growth of output indicators and economic growth in China: empirical evidence on causal links. Int J Econ Financ Issues 8(3):315

    Google Scholar 

  4. Baek J, Choi YJ (2017) Does foreign direct investment harm the environment in developing countries? Dynamic panel analysis of Latin American countries. Economies 5(4):39

    Article  Google Scholar 

  5. Baghebo M, Apere TO (2014) Testing the “pollution havens hypothesis (PHH)” in Nigeria from 1970-2013. Mediterr J Soc Sci 5(23):598

    Google Scholar 

  6. Bao Q, Chen Y, Song L (2011) Foreign direct investment and environmental pollution in China: a simultaneous equations estimation. Environ Dev Econ 16(1):71–92

    Article  Google Scholar 

  7. Bayraktar-Sağlam B, Sayek Böke S (2017) Labor costs and foreign direct investment: a panel VAR approach. Economies 5(4):36

    Article  Google Scholar 

  8. Bazrbachi A, Sidique SF, Shamsudin MN, Radam A, Kaffashi S, Adam SU (2017) Willingness to pay to improve air quality: a study of private vehicle owners in Klang Valley, Malaysia. J Clean Prod 148:73–83

    Article  Google Scholar 

  9. Boqiong Y, Jianguo C (2011) An empirical model of the environmental effect of FDI in host countries: analysis based on Chinese panel data

  10. Bruland K, Mowery DC (2004) Innovation through time. Georgia Institute of Technology

  11. Cho S (2018) China’s experience in tackling water scarcity through sustainable agricultural water management. Retrieved from http://blogs.worldbank.org/water/china-experience-tackling-water-scarcity. Accessed Nov 2018

  12. Deng Y, Xu H (2015) International direct investment and transboundary pollution: an empirical analysis of complex networks. Sustainability 7(4):3933–3957

    Article  Google Scholar 

  13. Dong B, Gong J, Zhao X (2012) FDI and environmental regulation: pollution haven or a race to the top? J Regul Econ 41(2):216–237

    Article  Google Scholar 

  14. Elliott RJ, Zhou Y (2013) Environmental regulation induced foreign direct investment. Environ Resour Econ 55(1):141–158

    Article  Google Scholar 

  15. Erik H (2016) The impact of foreign direct investments on regional air pollution in the Republic of Korea: a way ahead to achieve the green growth strategy?

  16. Gao X, Zhang W (2013) Foreign investment, innovation capacity and environmental efficiency in China. Math Comput Model 58(5–6):1040–1046

    Article  Google Scholar 

  17. Gibson C (2018) Water Pollution in China is the Country’s Worst Environmental Issue. Retrieved from https://borgenproject.org/water-pollution-in-china/. Accessed Oct 2018

  18. Hu J, Wang Z, Lian Y, Huang Q (2018) Environmental regulation, foreign direct investment and green technological Progress—evidence from Chinese manufacturing industries. Int J Environ Res Public Health 15(2):221

    Article  CAS  Google Scholar 

  19. IEA (2011) CO2 emission from fuel combustion highlights. OECD/IEA, Paris

    Google Scholar 

  20. Istamto T, Houthuijs D, Lebret E (2014) Willingness to pay to avoid health risks from road-traffic-related air pollution and noise across five countries. Sci Total Environ 497:420–429

    Article  CAS  Google Scholar 

  21. Jie H (2008) Foreign direct investment and air pollution in China: evidence from Chinese cities. Région et Développement n 28:132–150

    Google Scholar 

  22. Jones HP, Hole DG, Zavaleta ES (2012) Harnessing nature to help people adapt to climate change. Nat Clim Chang 2(7):504–509

    Article  Google Scholar 

  23. Jorgenson AK (2012) The sociology of ecologically unequal exchange and carbon dioxide emissions, 1960–2005. Soc Sci Res 41(2):242–252

    Article  Google Scholar 

  24. Jorgenson AK, Clark B (2011) Societies consuming nature: a panel study of the ecological footprints of nations, 1960–2003. Soc Sci Res 40(1):226–244

    Article  Google Scholar 

  25. Kirkulak B, Qiu B, Yin W (2011) The impact of FDI on air quality: evidence from China. Journal of Chinese Economic and Foreign Trade Studies (JCEFTS) 4(2):81–98

    Article  Google Scholar 

  26. Kostakis I, Lolos S, Eleni S (2016) Foreign direct investment and environmental degradation: further evidence from Brazil and Singapore

  27. Kram T, Neumann K, van den Berg M, Bakkes J, van Meijl J, Tabeau A (2012) Global integrated assessment to support EU future environment policies (GLIMP) (9279250922). Retrieved from

  28. Liu Q, Wang S, Zhang W, Zhan D, Li J (2018) Does foreign direct investment affect environmental pollution in China's cities? A spatial econometric perspective. Sci Total Environ 613:521–529

    Article  CAS  Google Scholar 

  29. MOC (2018) China says FDI up 7.9% in 2017. Beijing Retrieved from http://english.gov.cn/archive/statistics/2018/01/16/content_281476015941646.htm. Accessed Sept 2018

  30. OECD (2002) Environmental benefits of foreign direct investment: a literature review, document of the working party on global and structural policy. OECD Publishing, Paris

    Google Scholar 

  31. Olney WW (2013) A race to the bottom? Employment protection and foreign direct investment. J Int Econ 91(2):191–203

    Article  Google Scholar 

  32. Pazienza P (2015) The environmental impact of the FDI inflow in the transport sector of OECD countries and policy implications. Int Adv Econ Res 21:105–116

    Article  Google Scholar 

  33. Polat B (2017) Rate of return on foreign investment income and employment labour protection: A panel analysis of thirty OECD countries. Cogent Economics & Finance (CE&F) 5(1):1273588

  34. Rice J (2008) Material consumption and social well-being within the periphery of the world economy: an ecological analysis of maternal mortality. Soc Sci Res 37(4):1292–1309

    Article  Google Scholar 

  35. Rohde RA, Muller RA (2015) Air pollution in China: mapping of concentrations and sources. PLoS One 10(8):e0135749

    Article  CAS  Google Scholar 

  36. Sarmidi T, Nor AHSM, Ridzuan S (2015) Environmental stringency, corruption and foreign direct investment (FDI): Lessons from global evidence. Asian Academy of Management Journal of Accounting and Finance (AAMJAF) 11(1):85–96

    Google Scholar 

  37. Sothan S (2017) Causality between foreign direct investment and economic growth for Cambodia. Cogent Economics & Finance (CE&F) 5(1):1277860

    Google Scholar 

  38. Tingting D (Producer) (2017) In China, the water you drink is as dangerous as the air you breathe. Retrieved from https://www.theguardian.com/global-development-professionals-network/2017/jun/02/chinawater-dangerous-pollution-greenpeace. Accessed Oct 2018

  39. van der Kamp D, Lorentzen P, Mattingly D (2017) Racing to the bottom or to the top? Decentralization, revenue pressures, and governance reform in China. World Dev 95:164–176

    Article  Google Scholar 

  40. Wang X, Sun C, Wang S, Zhang Z, Zou W (2018) Going green or going away? A spatial empirical examination of the relationship between environmental regulations, biased technological Progress, and green Total factor productivity. Int J Environ Res Public Health 15(9):1917

    Article  Google Scholar 

  41. Wasseem M (2017) The Race to the Top: Institutional Clusters and World FDI Shares. Mina. In: Wasseem

    Google Scholar 

  42. WIR (2018) World investment report 2018: key messages and overview. New York and Geneva, 2018: United Nations conference on trade and development, Geneva

  43. Yahaya A, Nor NM, Habibullah MS, Ghani JA, Noor ZM (2016) How relevant is environmental quality to per capita health expenditures? Empirical evidence from panel of developing countries. SpringerPlus 5(1):925

    Article  Google Scholar 

  44. Yan M, An Z (2017) Foreign direct investment and environmental pollution: new evidence from China. Econ Lett 4(1):1–17

    Google Scholar 

  45. Yang J, Wang Y (2016) FDI and environmental pollution nexus in China

  46. Yuan P, Cheng S, Sun J, Liang W (2013) Measuring the environmental efficiency of the Chinese industrial sector: a directional distance function approach. Math Comput Model 58(5–6):936–947

    Article  Google Scholar 

  47. Zmarak S (2006) Addressing China's growing water shortages and associated social and environmental consequences. The World Bank, Washington, DC

    Google Scholar 

  48. Zheng J, Sheng P (2017) The impact of foreign direct investment (FDI) on the environment: market perspectives and evidence from China. Economies 5(1):8

    Article  Google Scholar 

  49. Zhu S, Ye A (2018) Does the impact of China’s outward foreign direct investment on reverse green technology process differ across countries? Sustainability 10(11):3841

    Article  Google Scholar 

Download references

Author information

Affiliations

Authors

Corresponding author

Correspondence to Emmanuel Caesar Ayamba.

Additional information

Publisher’s note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Responsible editor: Nicholas Apergis

Rights and permissions

Reprints and Permissions

About this article

Verify currency and authenticity via CrossMark

Cite this article

Ayamba, E.C., Haibo, C., Ibn Musah, A. et al. An empirical model on the impact of foreign direct investment on China’s environmental pollution: analysis based on simultaneous equations. Environ Sci Pollut Res 26, 16239–16248 (2019). https://doi.org/10.1007/s11356-019-04991-9

Download citation

Keywords

  • Foreign direct investment
  • Environmental pollution
  • Simultaneous equations
  • Sustainable development
  • Economic growth