Foreign direct investment and environmental pollution in China: a simultaneous equations estimation

Abstract

This study investigates the effects of foreign direct investment (FDI) on emissions of five pollutants in China using a panel data set of 29 provinces over the period 1992-2004. The study applies a simultaneous equations estimation technique to estimate the scale, technique and composition effects of FDI on China's overall and regional pollution emissions. The estimation results show that FDI in general helps reduce pollution emissions in China, contributing largely to its technique effect. Capturing both the direct and indirect technique effects improves the accuracy in assessing the environmental impact of the FDI. The study also finds that the environmental impacts of FDI vary significantly among different regions and for different pollutants in China.