Social Sciences in China 2012, Issue 5

Authors: Sheng Bin and Lyu Yue

Abstract: This study introduces the technological factor into the Copeland-Taylor model and decomposes the impact of foreign direct investment (FDI) on the environment of the host country into three mechanisms: scale effect, structural effect and technological effect. It also draws on the panel data from 36 Chinese industries in 2001-2009 and uses a structural econometric model and the SYS-GMM to explore the relationship between the level of FDI inflow and pollutant emissions. The major finding of the study is that FDI helps reduce industrial pollutant emissions both in general and in specific industries, because the positive technological effect of FDI brought about by introduction and expansion of technology is greater than the negative scale and structural effects. Furthermore, since the level of FDI inflow still lags behind the optimal level for environmental protection in China, we should encourage the entry of foreign-invested enterprises with technological advantages in environmental protection, so as to achieve the strategic goals of energy conservation, emissions reduction and sustained development.

Keywords: foreign direct investment, pollutant emissions