Analysis On The Environmental Impact Of Introducing FDI Into Yunnan Province

With China becoming the first target country for foreign investment, The FDI(Foreign Direct Investment) in Yunnan province, which is located in the southwest of China, keeps growing continuously. As an under-developing province in technology and basic infrastructures comparing with advanced ones, the growth of FDI in Yunnan area is impressive. For example, from 2006 to 2012, the FDI keeps growing at a high average rate of 45% in this province. And it already reaches 2189 million US dollars at the end of 2012. The growth of FDI brings Yunnan province money, advanced equipment and management techniques. However, it also brings serious environmental problems such as the increase of Carbon Dioxide emission. Fortunately, though develops fast, Yunnan province is still on the beginning period of industrialization, which means that the pollution situation is not as serious as other provinces, who begin industrialization much earlier. This allows us have time and prior experiences learnt from other provinces to do environmental protection work. One of the important protection methods is treating the relationship between FDI and Carbon Dioxide emission correctly to avoid pollution-first-and-treatment-later developing mode. This is helpful to keep the balance between economic growth and environmental protection in Yunnan province. Unfortunately, though the relationship between FDI and Carbon Dioxide emission is very important for healthy economic development, very limited research is done about this in Yunnan Province. This paper fills this gap by trying to use simultaneous equation model to stimulate the influence of FDI on Carbon Dioxide emission. The research questions in this paper are 1) what’s the impact of FDI on the emission of Carbon Dioxide in Yunnan province and 2) how we implement this impact to practical environmental protection work?To maintain sustainable growth of economics without the cost of environment in Yunnan province, this paper investigates the impact of FDI on emission of Carbon Dioxide based on the Trading Environmental Impact Theory proposed by Grossman and Krueger in 1991.To better understand the impact, we classify it into four categories: scale impact, structure impact, technique impact and environmental regulation impact. Then we build a simultaneous equation model and evaluate it using data about FDI and Carbon Dioxide emission in Yunnan province from the year 1985 to 2012. Our results show that the model is effective and efficient to analyze the relationship between FDI and Carbon Dioxide emission. The results show that the scale and environmental regulation impacts of FDI on Carbon Dioxide emission are negative while the technique impact and structure impact is positive.These results answer our first question about how FDI influence the emission of Carbon Dioxide. And they also give us brand new angles to see the advantages as well as disadvantages of FDI in Yunnan province and to answer the question how to decrease Carbon Dioxide emission with the increase of FDI. According to the results, this paper makes recommendations on related policies on FDI. We suggest the province can put more effort on attracting FDI and optimize production structure to increase scale and structure impacts. To strengthen positive technique impact and build better environmental regulation system, the quality of FDI should be guaranteed before they are brought in. In a word, dealing with the impact of FDI on the emission of Carbon Dioxide emission correctly is critical and helpful to build a harmonious Yunnan. These suggestions presented in the paper answer the second question about how to implement our results to actual environmental protection work in Yunnan province.As the first to study the impact of FDI on Carbon Dioxide emission in Yunnan province, this paper broadens the academic body of FDI research and contributes a lot to implementation as well. It uses a new perspective to study the environmental problem brought by FDI and tries to solve the problem by giving suggestions based on the results. We believe that the results and suggestions proposed in this paper provide theoretical foundation for future research on FDI, and can also be a practical foundation for implementation to reach the goal of economic growth as well as environmental protection simultaneously in Yunnan province.