An Empirical Analysis On Impact Of Environment Regulations Upon Distribution Of FDI

The regional distribution of FDI is affected by lots of factors, among which the environmental regulations are worth studying.Because of soft constraints of environmental regulations and cost of environmental regulation on enterprise, local governments have motivation to pursue economic development through FDI and loose environmental regulations; but strict environmental regulations may improve competitive advantage of the enterprise through innovation compensation and first-mover advantage, so strict environmental regulations are conducive to attracting local FDI. Therefore, the effect of environmental regulation on introducing FDI may be positive or negative. Through analyzing the status quo of location distribution of China's FDI and environmental regulations, we found that location distribution of China's FDI is imbalance and the design and implementation of environmental regulations in various areas are quite different. On this basis, we thought the environmental regulations may have negative impact on FDI on the ground of current environmental regulations system. After applying the model of the international facts flow, we found strict environmental regulations are the important factor that affects FDI regional distribution and strict environmental regulation will transfer FDI to the areas where there are loose environmental regulations. On these bases, we used the related date of China's 28 provinces from 1999 to 2004 and 192 cities from 2003 to 2006 and constructed the panel data modal to analyze the effect of environmental regulations on FDI regional distribution. The results showed effect is significantly negative and is reflected not only in the provinces but also in the cities. Due to the difference of environmental regulations standards, the regional distribution of FDI shows the characteristics that FDI transfer to the region where environmental regulations is loose; While in the city level, the effect on the eastern region is larger than that on the central and western regions. Therefore, we must strengthen foreign investment policies of environmental protection-oriented, encourage introducing foreign enterprises of environmental protection-oriented, encourage foreign businessmen to invest in high-tech, modern service industries, and achieve the perfect integration of introducing foreign capital and protecting environment.