Environmental Effects Of Foreign Direct Investment In Hunan Province

Since reform and opening up, foreign direct investment poured into China whichbrought much-needed capital and advanced technologies, promoted the developmentof China’s economy, and also narrowed the technological gap between China and thedeveloped countries. While foreign direct investment has promoted the economicdevelopment of host countries, it also has a negative impact on the environment,especially for the countries and regions which in the pursuit of fast-growing. Theyusually tend to import more foreign funds at the expense of the environment. Hunanprovince, locates in central China, started later in attracting foreign investment thanthe Eastern and coastal areas owing to economic, geographical and other reasons,. ButHunan provincial government has adopted effective policies and actively introducedforeign funds according to the actual situation of the province. What kind of impactwill the foreign investment will bring to the environment of Hunan province? Thisarticle will explore this issue.Firstly, this paper analyses the current situation of Hunan province, it shows thatalthough the foreign investment in Hunan has increased, but compared to the Easternand coastal areas, Hunan province absorbed less foreign investment amount. Most ofthe foreign investment flows into secondary industries, especially the manufacturingindustry, less foreign capital flows into the primary industry and service sector. Theresearch results also showed the unbalanced geographical distribution. West areas ofHunan, such as Huaihua, Zhangjiajie absorbed less foreign investment whichwidening economic disparities between regions in Hunan province. The results alsoshowed that the emissions and intensity of industry in Hunan province have declinedin recent years.Then, this paper selects1990-2012economical and environment data in Hunanprovince to establish a three equations simultaneous model, and, dividesenvironmental effects of foreign direct investment into direct and indirect effects, which, indirect effects includes scale and composition effects. The net effects of thesethree facts on the environment determine the environmental effects of foreign directinvestment in Hunan Province. Conclusions from the empirical analysis are: theforeign direct investment is positive to the environment effects which it couldimprove the environmental quality of Hunan province.In particularly, direct effects of foreign direct investments are conducive to theimprovement of environmental quality in Hunan province. The reason is that theforeign-funded enterprises with high environmental standards could promote the localenvironmental protection standards. Localization of development is conducive to theaccumulation of more high-quality human capital which also could improve industrialstructure so as to undertake the higher technology industries with lower-pollution. Atthe same time, the foreign investment which access to finance and research hasundergone a steadily increase. Secondly, the scale of foreign direct investment canalso improve the environmental quality of Hunan province. The reason is that as theincrease of per capita income, people’s demand for environmental quality alsoincrease, which made people preferring to green products. With the shift of consumerpreferences, producers will introduce green production equipment, use cleanerproduction methods, and make the products in line with environmental protectionstandards. Government also has more finances to develop environmental protectionindustry and administer environmental pollution. Finally, the composition effect offoreign direct investment has a negative impact on the quality of the environment ofHunan province. As the secondary industry dominates the three major industries inHunan province, a lot of foreign direct investment poured into which promoted thedevelopment of polluting industries in the secondary industry, and therefore increasedpollution emissions. As the direct and scale effects on environmental qualityimprovement is greater than the degree of deterioration in the quality of thecomposition effect on the environment, the resulting environmental effects of foreigndirect investment could improve the environmental quality of Hunan province.Finally, to enable foreign investors to serve the economic development ofHunan province better and to improve the environment in Hunan province, also to the establishment of a resource-saving and environment-friendly society, this paperproposes some recommendations such as improving the quality of foreign investment,encouraging foreign investment in Western areas, adjusting the industrial structure offoreign investment, accelerating the Green GDP accounting and promotion, encourageNGOs to develop, etc.