Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/238486 
Year of Publication: 
2020
Series/Report no.: 
ADBI Working Paper Series No. 1129
Publisher: 
Asian Development Bank Institute (ADBI), Tokyo
Abstract: 
Using a new dataset on foreign direct investment (FDI) and a comprehensive measurement of environmental policy stringency and enforcement, this paper studies the spatial distribution of inbound FDI in manufacturing sectors by accounting for strategically determined environmental policies across Chinese cities over the period 2003-2014. In particular, we investigate how the stringency of environmental regulation affects the FDI inflow of a city and its neighbors. We find strong evidence that the pollution haven hypothesis applies to the People's Republic of China based on both spatial lag of X and two-stage least-squares estimates. In particular, the laxity of a city's own environmental regulation is positively associated with its inbound FDI. We further investigate the investment deflection effect and find that the laxity of neighboring environmental regulation is negatively related to the FDI inflows to a city.
Subjects: 
environmental regulation
inbound foreign direct investment
SLX model
two-stage least squares
pollution haven effect
JEL: 
C31
L51
Q56
Q58
R1
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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