This study focuses on the limitations of existing studies that fail to examine the impact of FDI quality on local environmental pollution. Using "environmental regulation" as the threshold variable, we first analyze the effect of FDI quality on local ...
This study focuses on the limitations of existing studies that fail to examine the impact of FDI quality on local environmental pollution. Using "environmental regulation" as the threshold variable, we first analyze the effect of FDI quality on local environmental pollution in the country, and then empirically analyze whether there is a non-monotonic effect of FDI quality on local environmental pollution following the level of "environmental regulation".
The empirical analysis finds the panel data of 30 Chinese provinces from 2005 to 2019 and runs the panel linear regression model and panel threshold regression model to verify the effect of FDI quality on environmental pollution by establishing the FDI quality index system. FDI quality is based on prior studies, and four variables, namely, average FDI inflow amount, export promotion, profitability, and technology level, are selected, and the entropy value method is used to establish comprehensive indicators.
In the panel linear regression model, the effects of four FDI quality indicators, namely, average FDI inflow amount, FDI export promotion, FDI profitability, and FDI technology level, on environmental pollution were analyzed, and the results showed that average FDI inflow amount, FDI export promotion, and FDI profitability improvement had significant effects on reducing environmental pollution as expected, and the effects of FDI technology level improvement on environmental pollution were not significant. The results of the overall analysis, however, indicate that the enhancement of FDI quality helps to lessen environmental contamination.
In addition, this study examined the non-monotonic effects of FDI quality on environmental pollution using a threshold regression model. The analysis results show that there is a significant threshold effect of environmental regulation on the environmental impact of FDI quality, and the environmental pollution improvement effect of FDI quality increases as the level of environmental regulation increases. When the environmental regulation is low, FDI quality can reduce the pollution of the local environment, but the effect is not fully revealed. Only when the environmental regulation reaches a certain level, FDI enterprises will expand their investment scale, improve green production technology, invest their profits in the research and development of green technology and process to adapt to the strict environmental regulation, and finally give full play to the environmental improvement effect.