Comparative Study On Effect Of Foreign Capital And Domestic Capital On Air Pollution

More than thirty years after the policy of reform and opening up, our country attracts a large number of foreign capitals to provide a powerful driving force for the rapid development of China’s economy. At the same time, the environment problem has become unbearable under the frequent occurrence of the fog and haze phenomenon in recent years. The fog and haze has repeatedly become the major news headlines, and heavily influenced people’s daily life. A lot of researches have indicated that the foreign capital with strong international liquidity was closely related to the host country’s environmental pollution, and has formed many theoretical hypotheses while no consistent conclusion. It shows that our research owns the necessity on theory.After summarizing the existing hypothesis abroad, this paper finds that these hypotheses are mainly emphasizing their views from different angles, then carrying on the theoretical basis by evaluating the connections and differences between these hypotheses. Next, this study discovers the main empirical findings at home and abroad has one-sidedness to a certain extent. Then this paper develops the theory of the classic decomposition model from comparing the differences between the foreign and domestic investment, and makes a new empirical research by using the data of China. In detail, by using panel data of China’s provincial industrial sector from2002to2012and incorporating environmental regulation effect into the classical Grossman decomposition model, this paper analyzes the varied effect of foreign and domestic capital on industrial sulfur dioxide emissions. Scale effect, structure effect and technical effect are classified according to foreign-funded and domestic-funded enterprise types. The results show that foreign capital has a positive scale effect, negative structure effect and negative technology effect on the emissions, while domestic capital exerts a positive structure effect, negative scale effect and negative technology effect. Compared with domestic capital, foreign capital is merely superior in terms of structure effect. These findings testify to the "Pollution Haven Hypothesis" to some extent but do not uphold the "Pollution Halo Hypothesis". Finally, this paper proposes many targeted policy recommendations.