Pollution halo or pollution haven: assessing the role of foreign direct investment on energy conservation and emission reduction

This paper uses spatial econometric and the threshold effect models to study the effects of foreign direct investment (FDI) in China’s energy conservation and emissions reduction. We use provincial-level data on pollutants (CO2, wastewater emission, exhaust emission, and waste emission) available from 2001 to 2015. Results indicated that FDI not only promotes China’s “energy conservation,” but also improves China’s CO2 emission efficiency and environmental efficiency. We find that export-oriented foreign companies can significantly improve China’s energy efficiency and water quality. FDI enhances energy efficiency through eco-oriented technological progress and water quality, air quality through production-oriented technological progress. We also find that the impact of FDI on China’s energy conservation and emission reduction has significant threshold effects. Our findings contradict the often believed “pollution haven hypothesis.”

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