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Environmental courts and foreign direct investments: evidence from China

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Abstract

As China’s pollution problems worsen, environmental disputes are increasing rapidly. However, only 1% of environmental disputes can be resolved via judicial channels. Based on the establishment of environmental courts since 2007, we employ the multi-period DID approach to investigate the impact of environmental courts on foreign direct investments. We find that (1) compared with cities without environmental courts, FDI of cities with environmental courts would drop by 3.32% from the average, which is consistent with the pollution haven hypothesis. Besides, we verify the credibility of the conclusion through detailed endogeneity discussions, placebo tests, and robustness tests. (2) The negative effect of environmental courts on foreign direct investments is more salient in the east, regions with higher historical environmental investment, and regions with more serious local protectionism. (3) There are two channels. The greater risks of environmental litigation and stricter environmental public supervision brought by environmental courts would lead to additional environmental violation costs, thereby inhibiting foreign direct investments. Our findings provide new causal evidence for the pollution haven hypothesis from the perspective of intensive environmental justice.

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Data availability

All original data are derived from public database and websites. Related data generated or analyzed during this study are included in this published article.

Notes

  1. The related data comes from the 29th meeting of the Standing Committee of the Eleventh National People’s Congress. We can find the news at the official website of the National People’s Congress of the People’s Republic of China (http://www.npc.gov.cn/zgrdw/npc/xinwen/2015-03/15/content_1928664.htm).

  2. The data derives from the same news in the above website.

  3. Zhang et al. (2019b) take environmental courts in China as a quasi-natural experiment and find that environmental courts significantly enhance firms’ environmental investment. There are some differences between our paper and Zhang et al. (2019b). First, Zhang et al. (2019b) evaluate the effect of environmental courts on firms’ environmental investment, while our paper mainly focuses on the relation between environmental courts and FDI. Second, considering that the establishment of environmental courts is a variation in city, our analysis is mainly based on city-level panel, while Zhang et al. (2019b) is investigating the impact of environmental courts on firms’ activities.

  4. The formula is e10.3842 = 32,344.52, and the unit is ten thousand dollars. Besides, the following numbers are obtained in the same way.

  5. The ratio is calculated by (e−0.3862-e0)/9.6478, where 9.6478 is the mean of FDI of overall sample.

  6. The significance decreases to 10% level, which may be due to the small sample size.

  7. The data is obtained by Operational Linescan System (OLS) sensors carried by the US Defense Meteorological Satellite Program (DMSP).

  8. During the sample period, 11 provinces have established pollution rights trading centers, including Jiangsu, Zhejiang, Tianjin, Hubei, Hunan, Inner Mongolia, Shanxi, Chongqing, Shaanxi, Hebei, and Henan.

  9. The data on the number of environmental dispute cases are mainly collected manually from the ITSLAW website. The website is https://www.itslaw.com/home.

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Funding

The paper was supported by the Major Program of National Fund of Philosophy and Social Science of China (Grant No. 20&ZD072), China National Social Science Fund (Grant No. 19BJY008), the Youth Academic Team in Humanities and Social Sciences of Wuhan University (Grant No. 4103–413100001), and the Educational Innovation Project of Graduate Tutor of Wuhan University in 2021 (Grant No. 1201–413100137).

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Authors and Affiliations

  1. Economics and Management School, Wuhan University, Wuhan, 430072, China

    Xiaoqi Huang & Wei Liu

  2. School of Accounting, Zhongnan University of Economics and Law, Wuhan, 430072, China

    Zhi Cao

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  1. Xiaoqi Huang
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  2. Wei Liu
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  3. Zhi Cao
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Contributions

Xiaoqi Huang is the main designer of the article, mainly responsible for the conceptualization, methodology, and original draft preparation. Wei Liu is contributed to the organization of the framework and multiple reviews of the manuscript. Zhi Cao is an important participant in the paper and participated in the writing of the article. All authors read and approved the final manuscript.

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Correspondence to Wei Liu.

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Fig. 5
figure 5

Propensity score matching. Note: The figure is depicted based on the result of propensity score matching. The mean of bias is 58.0 before matching, while it is only 3.9 after matching

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Huang, X., Liu, W. & Cao, Z. Environmental courts and foreign direct investments: evidence from China. Environ Sci Pollut Res 29, 31400–31412 (2022). https://doi.org/10.1007/s11356-021-17520-4

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