A Study On The Effect Of Environmental Regulations Upon FDI

As the economical globalization booms, environmental problems in various countries are becoming increasingly worse, resulting in even more severe environmental regulation measures being implemented in these nations. These measures, while achieving environmental efficiency, are imposing an obvious impact on the growth patterns of these economies. As a major means of international capital flow, foreign direct investment (FDI) has pushed forward economical globalization and greatly facilitated economic growth in the host nation, where serious environmental problems have emerged though. Faced with the shortage of environmental resources, these nations will have to fortify their environmental regulation and introduce quality FDI, as well as modifying their industrial structure and altering their economic growth pattern, in a bid to achieve sustainable development.This paper, based on theories and methods of International Trade, Industrial Economics and International Investment, employs such approaches as theoretic analysis, static analysis, dynamic analysis, and case study in an effort find out the intrinsic regularity about how environmental regulation influences FDI. Besides the standard research paradigm in economics and the relevant theoretical models, the research methods of modern econometrics are also taken to help track the influences China's environmental regulation has upon its FDI.Researches in this paper show that environmental regulation has an effect on both the influx amount and the capital quality of FDI. The influence on the influx amount is dynamically demonstrated in terms of its spatial distribution and industrial distribution, whereas the quality influence is shown dynamically in terms of FDI's technological improvement and the increase of its capital efficiency. The main framework for research in this paper is thus formed by taking together the FDI influx amount and its quality, and by integrating the influences on the spatial distribution, technological improvement, and industrial structure alteration that environmental regulation exerts.Four central conclusions are reached in this paper.1) China's environmental regulation has a remarkable negative influence on FDI regional distribution, i.e., the more intensive the environmental regulation in an area, the smaller the FDI influx amount and the lower the FDI relative density.2) The environmental regulation in China imposes a striking positive influence on FDI technological advancement for various regions and industries.3) The environmental regulation also exerts a notable positive impact on the FDI proportion increase of the secondary industry, as opposed to the obvious negative impact on the tertiary industry change, whereas no marked relation is detected as the primary industry is concerned.4) China's environmental regulation also has a prominent positive effect on the FDI's second internal structure alteration.The findings in this research are expected to be of great significance for China to coordinate its environmental regulation policies, independent innovation policies and financing policies. It is advised that different regions and industries in China increase their regulation standards and intension, promote environmental protection, upgrade FDI technologies and industrial structure, and compensate for the FDI outflow caused by environmental regulation. These efforts are believed to help fulfill the strategic purposes of China's industrial structure alteration, change in its economic grow pattern and harmonious social development.