Host Country's Environmental Regulations And MNCs' FDI Location Selection

Since the reform and opening door policy, China treat the foreign direct investment as an important content of opening-up policy all along, so far, China has become one of the most important FDI recipient countries. With the increasing awareness of foreign investment and global environmental problems, the relationships between FDI and the environment, as well as FDI and environmental regulations are becoming the hot spots in international academe.At present, there are two diametrically opposed academic view: One is Pollution Havens Hypothesis, they considered that environmental regulations will depress the industrial competitiveness seriously, so corporations can attract the foreign investment from world's pollution-intensive industries through enduring relatively low environmental costs in low environmental standards country. Then expert deducted that many countries will be competing to lower environmental standards in order to avoid the detriment of their competitiveness to attract FDI from higher environmental standards, namely 'race to the bottom' hypothesis. Another point of view thought that if we make a dynamic framework, more strict environmental regulations will stimulate the technological innovation and management innovation, then corporatins can increase the competitiveness of attracting FDI through adopting the green technology, that is the 'Porter Hypothesis' raised by an American scholar Michael Porter.Based on the Former Research,Through construct the two-variable model of Environmental Regulation Intensity(ERI) and Chinese actual FDI, we inspected the causal relationship of six ERI indicators and FDI by co-integration test and two types of Granger causality test methods, and investigated the dynamic interactions of ERI indicators to FDI by employing generalized impulse response function and variance decomposition analysis, which are based on VAR method.Then we inspected the main factors of FDI on the location choice by using the PLS method, and Highlight the effects of environmental regulations on FDI location selection.At last,we establish the simultaneous equation of environmental regulations and FDI by regarding them as endogenetic variable, a series of empirical test showed that in general: environmental regulations are the important factors of FDI on the location choice, but it is not true vise versa, so this is just confirmed the 'Porter Hypothesis'.This conclusion provides a theoretical basis for adjusting the China's FDI location choice and turning the strategy,even it's according with the needs of recycling economy and sustainable development.