Foreign Direct Investment, Environmental Pollution And Strategic Emission Reductions

With further development of economic globalization, the relationship of each country has become widened and consolidated in economy, and the conflict between economic growth and environmental pollution has been more obvious. These phenomenon have sparked broad concern on sustainable development. Given existing theoretical and emprical research have failed to explain new issues that arise, this paper combines with transboundary pollution transfer, pollution spillovers as well as pollution bandwagons to our research. We attempt to empirically test the effects of international investment on global environmental quality and transboundary pollution from the perspective of complex networks. Then we offer a rational explanation for these phenomenon from the perspectives of local government competition as well as government-enterprise collusion and answer following questions: In the era of growing globalization and specialization, how does the transboundary pollution transfer carried by international capital come about? As an important node in global investment system, Local government competition is endemic in China. So whether government competition will make a noticeable difference in the environmental effects of FDI? Whether the competition for FDI will increase spatial spillovers of pollution emissions? Whether economic incentive and political promotion will drive government-enterprise collusion to escape emissions monitor from central government? If they exist, how government-enterprise collusion drive strategic emissions reduction in local areas? How to improve environmental quality via agglomeration effects of FDI? How to create a new modality that incorporates the market, government and firms as a trinity to combat the pernicious rise of pollution ?First of all, this paper employs a complex network method in the construction of interational investment network which reflects investment relationships as well as investment destinations between countries. After exploring the topology structure of international investment network, we incorporate local network indexes into spatial econometric models to further research how node cohesion, node importance and node centrality affect environmental quality and to investigate their roles in transboundary pollution transfer. Our studies indicate that the ties that bind nodes together in an international investment network have a significant impact on global environmental pollution. Additionally, node linkages between developing countries have greater negative effects on environmental quality than those of node linkages between developed countries. Moreover, greater node importance and node centrality will accelerate the speed and scale of polluting industries, and this process allows developed countries to more easily transfer their pollution-intensive industries to developing countries that possess higher node dependency. We also find that a factor endowment effect coexists with a pollution haven effect and that the impact of environmental regulation advantage in the international investment network is greater than the impact of factor endowment advantage.China, as an important node in international investment ne twork, is stuck in the patterns of using FDI that is characterized as quantity over quality and speed over benefits. These patterns not only result in deterioration in environmental pollution but also trigger vicious competition among jurisdictions. The crazy pursuit of FDI makes lots of local officials sacrifice the environment in exchange for temporary economic gain. Given all this, we further choose strategic interaction of local goverment, and use provincial panel data from 2001 to 2013 to empirically s tudy the impacts of strategic competition for attracting FDI on environmental pollution. The estimated results show the impacts of FDI on the environment depends not only on its environmental spillover effects both in inter-region and intra-region, but also on fiscal expenditure in local and neighbouring jurisdictions. Among these, the impacts of local expenditure competition for attracting FDI on the environment has a threshold effect, while the strategic expenditure of neighbouring jurisdictions significa ntly decreases that and shows a remarkable structural preference. The big expenditure in economic construction and limited input in public service has become competitively imitated polices among jurisdictions. The results of ESDA methods further indicates that there are remarkable differences in the impacts of strategic competition for attracting FDI on environmental quality among different accumulation area.The expenditure of neighbouring jurisdictions significantly decreases the environmental effecits of FDI in high accumulation area, but it doesn’t occur in low accumulation area.The competition for FDI remarkably worsens environmental quality, which obviously goes against emissions targets of central government. The institional reason can be traced to government-enterprise collusion. This paper considers that fiscal decentralization and the political promotion tournament greatly promote local goverment and enterprises toform pollution collusion. This behavior can reasonably explain why environmental pollution exists for a long time in China. We use 275 Chinese prefectural panel data from 2001 to 2013 to analysis how government- enterprise collusion drive strategic emissions reduction in local areas. Our research suggests that environmental pollution in Chi na has obvious features of strategic competition. The pollutant discharge among neighboring jurisdictions shows significant spatial spillover effects; in particular, there is competition for emissions reduction in neighboring jurisdictions of eastern areas. Government-enterprise collusion is the institutional root of strategic emission reductions. When collusion does not exist, FDI significantly improves regional environmental quality. However, once the collusion between local officials and polluters happens, the negative effects of FDI on environment are increasing gradully, so collusion weakens the positive effects of FDI on emission reduction. Besides, the environment is closly related with the National Congress of the Communist party held every five yea s.The officials in eastern areas take active implementation of emission reduction one year before and after the National Congress of the Chinese Communist Party is held. By contrast,the officials in central and western areas take that one year before the N ational Congress of the Chinese Communist Party is held, and start increasing pollution after the National Congress.Finally, we draw on panel data covering 36 Chinese industries over the 2001–2010 period to empirically test how the interactions between fo reign direct investment(FDI) and industrial agglomeration affect environmental pollution. The estimated results show that industrial pollution in China has obvious features of strategic competition and that there is competition for emissions reduction in industries with similar economic attributes, whereas there is a pollution bandwagon effect in industries with similar technological attributes. After controlling for the interaction between FDI and industrial agglomeration, we find that FDI significantly reduces industrial pollution. Industrial agglomeration further enhances the environmental spillovers of FDI, boosting strategic emissions reduction among neighboring industries. Sub-sector tests indicate that industrial agglomeration in light industry has more substantially positive effects on multinationals’ environmental effects, and these effects are mostly embodied in industries with similar technological attributes. However, the emissions-reducing effects of FDI in heavy industry are relatively small.