What Is the Role of FDI in Environmental Pollution? —Evidence from China*

Xu Helian and Deng Yuping
College of Economics and Trade, Hunan University, Changsha, China

Abstract: This paper analyzes the distribution patterns and spatial dynamic transitions of foreign direct investment (FDI) and pollution from 2000 to 2009 in China’s provinces by using the comprehensive pollution index (CEPI) and exploratory spatial data analysis. Findings suggest that FDI as well as environmental pollution in our provinces exists an obvious spatial autocorrelation, both of them have remarkable characteristics of path dependence and form different accumulation areas. Currently, the accumulations of high level FDI correspond to low-level environmental pollution, while the accumulations of low-level FDI are associated with high-level environmental pollution. Furthermore, the authors have empirically analyzed the impact of FDI on China’s environmental pollution by spatial error model (SEM) and spatial lag model (SLM) respectively. Findings suggest that the geographical clustering of FDI has a positive impact on China’s environment, in general,“ Pollution Haven Hypothesis” is invalid in China. In addition, there are remarkable differences in the impact of FDI on environmental pollution due to different sources, the foreign capital from offshore financial centers has significantly alleviated pollution in China while that from developed countries in East Asia and the West has played an insignificant role in environmental pollution.
Key words: foreign direct investment (FDI), environmental pollution, spatial

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