Foreign direct investment, institutional development, and environmental externalities: Evidence from China

Danny T WANG, Wendy Y. Chen*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

67 Citations (Scopus)

Abstract

The question of how foreign direct investment (FDI) affects a host country's natural environment has generated much debate but little consensus. Building on an institution-based theory, this article examines how the institutional development of a host setting affects the degree of FDI-related environmental externalities in China (specifically, industrial sulfur dioxide emissions). With a panel data set of 287 Chinese cities, over the period 2002-2009, this study reveals that FDI in general induces negative environmental externalities. Investments from OECD countries increase sulfur dioxide emissions, whereas FDI from Hong Kong, Macau, and Taiwan shows no significant effect. Institutional development reduces the impacts of FDI across the board. By focusing on the moderating role of institutions, this study sheds new light on the long-debated relationships among FDI, institutions, and the environments of the host countries.

Original languageEnglish
Pages (from-to)81-90
Number of pages10
JournalJournal of Environmental Management
Volume135
DOIs
Publication statusPublished - 15 Mar 2014

Scopus Subject Areas

  • Environmental Engineering
  • Waste Management and Disposal
  • Management, Monitoring, Policy and Law

User-Defined Keywords

  • China
  • Environmental externalities
  • Foreign direct investment
  • Industrial sulfur dioxide emission
  • Institutional development

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