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 journalJournal articlepeer-review

    124 Citations (Scopus)
    43 Downloads (Pure)

    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

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

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