Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-23T05:49:39.320Z Has data issue: false hasContentIssue false
  • English
  • Français

Pollution abatement cost savings and FDI inflows to polluting sectors in China

Published online by Cambridge University Press:  01 December 2007

WENHUA DI
WENHUA DI*
Affiliation:
University of Texas at Dallas, School of Economic, Political and Policy Sciences, P.O. Box 830688, GR 3.1, Richardson, Texas 75083-0688. Tel: (972) 883-4961. E-mail: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This paper uses a nested logit model to examine whether potential pollution abatement cost savings adjusted by institutional and socio-economic conditions influence the location choices of Foreign Direct Investment (FDI) among Chinese provinces. It incorporates individual polluting firms’ characteristics instead of looking only at location attributes. The results show that (i) FDI firms in polluting industries tend to locate in provinces with higher potential abatement costs savings adjusted for local environmental regulation; (ii) relatively dirtier firms are more likely to locate in less developed provinces or provinces with fewer similar polluting industries; (iii) firms in pollution-intensive industries are more sensitive to regulation and development status than firms in non-polluting industries; and (iv) firms tend to locate in provinces where they have more bargaining power with local governments. These findings suggest the existence of domestic pollution havens in China.

Type
Research Article
Information
Environment and Development Economics , Volume 12 , Issue 6 , December 2007 , pp. 775 - 798
Copyright
Copyright © Cambridge University Press 2007

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Blackman, A. and Wu, X. 1999, ‘Foreign direct investment in China's power sector: trends, benefits and barriers’, Energy Policy 27: 695–711.CrossRefGoogle Scholar
Brunnermeier, S. B. and Levinson, A. 2004, ‘Examining the evidence on environmental regulations and industry location’, Journal of Environment and Development 13: 6–41.CrossRefGoogle Scholar
Editorial Board of China Environment Yearbook (1992–1996), China Environment Yearbook, Beijing: Chinese Environmental Sciences Press.Google Scholar
Dean, J., Lovely, M., and Wang, H. 2002, ‘Foreign direct investment and pollution havens: evaluating the evidence from China’, unpublished manuscript, Syracuse University.Google Scholar
Dean, J., Lovely, M., and Wang, H. 2004, ‘Foreign direct investment and pollution havens. Evaluating the evidence from China’, USITC Working Paper 2004–01-B.Google Scholar
Dean, J., Lovely, M., and Wang, H. 2005, ‘Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China’, World Bank Working Paper No. 3505.CrossRefGoogle Scholar
Di, W. 2000, ‘Implementation of market-based instruments in China's environmental protection’, Working Paper, John F. Kennedy School of Government, Harvard University.Google Scholar
Di, W. 2004, ‘Essays on environmental economics and policy’, Ph.D. dissertation, Harvard University.Google Scholar
Ederington, J., Levinson, A., and Minier, J. 2005, ‘Footloose and pollution-free’, The Review of Economics and Statistics 87: 92–99Google Scholar
Greene, W. 2003, Econometric Analysis, Fifth edition, Upper Saddle River: Pearson Education, Inc.Google Scholar
Hettige, H., Martin, P., Singh, M., and Wheeler, D. 1995, ‘IPPS: the industrial pollution projection system’, World Bank Mimeo.Google Scholar
Huang, Y. 2003, Selling China, Foreign Direct Investment during the Reform Era, Cambridge: Cambridge University Press.Google Scholar
Jaffe, A., Peterson, S., Portney, P., and Stavins, R. 1995, ‘Environmental regulations and the competitiveness of US manufacturing: what does the evidence tell us?’, Journal of Economic Literature 33: 132–163.Google Scholar
Jeppessen, T., List, J., and Folmer, H. 2002, ‘Environmental regulations and new plant location decisions: evidence from a meta-analysis’, Journal of Regional Science 42: 19–49.CrossRefGoogle Scholar
Keller, W. and Levinson, A. 2002, ‘Pollution abatement costs and foreign direct investment inflows to US states’, The Review of Economics and Statistics 84: 691–703.CrossRefGoogle Scholar
Levinson, A. 1996, ‘Environmental regulations and manufacturers’ location choices: evidence from the Census of Manufactures’, Journal of Public Economics 62: 5–29.CrossRefGoogle Scholar
Levinson, A. and Taylor, S. 2004, ‘Unmasking the pollution haven effect’, NBER Working Paper No. 10629.Google Scholar
Lim, E. G. 2001, ‘Determinants of, and relation between, foreign direct investment and growth: a summary of the recent literature’, IMF Working Paper No. 01/175.Google Scholar
List, J. A. and Co, C.. 2000, ‘The effects of environmental regulations on foreign direct investment’, Journal of Environmental Economics and Management 40: 1–20.Google Scholar
List, J. A., Millimet, D. L., Fredriksson, P. G., and McHone, W. W. 2003a, ‘Effects of environmental regulations on manufacturing plant births: evidence from a propensity score matching estimator’, The Review of Economics and Statistics 85: 944–952.CrossRefGoogle Scholar
List, J. A., McHone, W. W., and Millimet, D. L. 2003b, ‘Effects of air quality regulation on the destination choice of relocating plants’, Oxford Economics Paper 55: 657–678.Google Scholar
Mani, M., Pargal, S., and Huq, M. 1996, ‘Does environmental regulation matter? Determinants of the location of new manufacturing plants in India in 1994’, World Bank Working Paper No. 1718, Washington, DC: World Bank.CrossRefGoogle Scholar
Mani, M. and Wheeler, D. 1998, ‘In search for pollution haven? Dirty industry in the world economy, 1960–1995’, Journal of Environment and Development 7: 215–247Google Scholar
McFadden, D. 1973, ‘Conditional logit analysis of quantitative choice behavior’, in Zarembka, Paul (ed.), Frontiers in Econometrics, New York: Academic Press.Google Scholar
National Bureau of Statistics of China (ed.) (1992–1996), China Statistical Yearbooks, Beijing: Chinese Statistics Press.Google Scholar
National Bureau of Statistics of China (ed.) (1992–1996), China Urban Statistical Yearbook, Beijing: Chinese Statistics Press.Google Scholar
Shatz, H. and Venables, A. 2000, ‘The geography of international investment’, The World Bank International Economics Working Paper No. 2338.Google Scholar
Smarzynska, B. and Wei, S.J. 2001, ‘Pollution havens and foreign direct investment and dirty secret or popular myth?’, NBER Working Paper No. 8465.CrossRefGoogle Scholar
Wang, H. and Wheeler, D. 1996, ‘Pricing industrial pollution in China: an econometric analysis of the levy system’, World Bank Policy Research Working Paper 1644.CrossRefGoogle Scholar
Wang, H. and Wheeler, D. 2005, ‘Financial incentives and endogenous enforcement in China's pollution levy system’, Journal of Environmental Economics and Management 49: 174–196.Google Scholar
Xian, G. and Zhang, C. 2000, ‘Environmental management in trans-national corporations in China’, UNCAD/CBS Report, Cross Border Environmental Management in Trans-national Corporations.Google Scholar
Xing, Y. and Kolstad, C. 1998, ‘Do lax environmental regulations attract foreign investment?’, Departmental Working Paper No. wp28–98pt1, Department of Economics, University of California, Santa Barbara.Google Scholar
Zarsky, L. 1999, ‘Havens, halos and spaghetti: untangling the evidence about foreign direct investment and the environment’, CCNM /EMEF /EPOC /CIME Working Paper, The Nautilus Institute.Google Scholar
Zhang, S. 2000, ‘FDI and environment: situation and challenges in China’, presentation at Center for Environmental Science, Peking UniversityGoogle Scholar