A Study On Foreign Direct Investment And Environment

From 1978 to 2007, the average annual economic growth of China is 10.5%, foreign direct investment (FDI) continued rapid growth. From 1985 to 2007, the average annual growth of FDI is 18%, china is becoming the first developing countries to attract investment. However, with the increasing foreign investment and economic growth, the level of pollution in China have deteriorated. At present, out of the ten most heavily polluted cities in the world, six city are in China. In China,46.5% of rivers are polluted and 10.6% of them have been seriously polluted, more than 90% of urban waters are severely polluted and 300 million citizens are drinking water below healthy standards. According to the report by the World Health Organization (WHO) in 2006, about 74% of Chinese citizens live in air-polluted areas. Environmental degradation is an indisputable fact. Given the amount of increasing foreign investment every year in China and the serious pollution, we should consider foreign direct investment and its environmental impact.Environmental costs are not adequately internalized in any country. Given policy failure, increasing economic activity will exacerbate existing distortions and is likely to cause major irreversible damages in environmentally sensitive sectors. The size and distribution of the environmental costs of FDI are usually not adequately accounted for when policy decisions on liberalization or investment incentives are made. FDI can fuel economic activity at a scale and pace that overwhelms host country regulatory capacity, resulting in inefficient and irreversible environmental damage.Despite the likely positive influence of FDI on a country's environment, the environmental performance of FDI cannot be taken for granted. It should be continuously monitored. In the absence of effective environmental policy, like any other type of investment, FDI can result in environmental degradation, especially if the FDI flows are so large to overwhelm the regulatory capacity of weak environmental authorities. The overall net effects of a foreign direct investment on the environment and sustainable development could be positive or negative.To design a clear, transparent, stable and consistently applied environmental regulatory system that can serve as an attraction for foreign investors who want to be able to predict their costs and returns and to be assured that these costs are stable and common to all competitors. The evidence tell us that no consistent or automatic relationship between FDI and positive externalities in developing countries.the impacts of FDI have been found to be highly heterogenous, differing by country, region, industry and even corporation.This paper argues that the impact of foreign direct investment on environmental regulation of the host country is conditioned by the host country's political system. Global and regional trade and investment rules directly limit requirements host contry governments can place on multinational corporations.In the absence of global environmental or corporate responsibility standards,competition between states for FDI puts a downward pressure on national environmental policy.while other social forces,including citizen demand, push environmental standards up, the counteracting pressure of competition for FDI keeps them "stuck in mud ".That is, it slows the rate of innovation in response to environmental threats.Finally, I propose that foreign investment and environmental protection should be coordinated. For example, at the national level, to capture the sustainability spillover of foreign investment, partnership development of multinational companies and host government and social groups should be established. Transnational corporations should become partners, while the regulation of "from bottom to up " is essential to balance the relationship between environment and FDI. The conclusion considers what changes in the global governance of investment would work in concert with a development partnership model to increase the potency of FDI in delivering positive spillovers.