An Empirical Study On The Relationship Between FDI And Industrial Pollution In China

In the field of foreign direct investment(FDI), the flight of pollution intensive industries has always been a sensitive topic. In recent years, with the increasing FDI inflow into China, the economic contribution of FDI has been more and more recognized by the public, however the impact of FDI on environment is also arousing a lot of concern. As the most important theory in this field, Pollution Haven Hypothesis consititutes the basic explanation for the shift of pollution from developed countries to developing ones. However, through the spill-over of environment technology and learning-by-doing effect, FDI can not only bring the potential threat of becoming Pollution Havens, but also some positive effect, which is called Pollution Haloes. The thesis follows into a systematic study to answer whether or not absorbing a large amount of foreign direct investment would result in further deterioration of environmental quality in China.The research approach of this paper combines theoretical analysis and empirical test. Firstly, we raised the framework of the study through summarizing the theory of the relationship between FDI and the environment and analyzed the status of FDI inflow and environmental pollution from the prospect of industries, domains and scales. Secondly, in this paper, we examines the two-way causal relationship of industrial pollution and FDI through co-integration test and Granger causality test. And then, we established the simultaneous equation of industrial pollution and FDI by regarding them as endogenetic variables, in order to analyze the direct and indirect effects of China's FDI on industrial pollution via inspecting the effects from FDI inflow, which contains scale effect, structural effect and technical effect.A series of empirical test showed that: there's only one-way causal relationship between FDI and industrial pollution, and FDI is not the cause for the increasing industrial emission. In the simultaneous model, there are different impacts of FDI inflow on industrial waste, but generally there is negative effect, that is, the introduction of FDI has not deteriorated the quality of the environment in China, on the contrary, it has improved the environmental quality. This empirical finding points to that "pollution haven" does not exist in China. Based on the above analysis, the paper puts forward some corresponding countermeasures.