Does environmental regulation affect the introduction of foreign direct investment in China? --Empirical research based on the spatial durbin model

Abstract

Based on the statistical data of 30 provinces in China from 2003 to 2014, this paper uses the spatial Durbin model to empirically test the influence of China’s urban environmental regulation on the introduction of foreign direct investment (FDI). The results show that there is significant spatial correlation between environmental regulation and FDI. Environmental regulation has a negative impact on the introduction of FDI, but the impact is not significant across the country, indicating that the evidence of the pollution haven hypothesis is insufficient in China. Then, the influential effect of environmental regulation on the introduction of FDI has obvious regional differences. The level of environmental regulation in the eastern region is positively correlated with the convenience in FDI introduction, while in the central and western regions, environmental regulation pose a hindrance to the introduction of FDI, which is remarkable only in the central area. In addition, labor costs and human capital levels have a direct effect on the introduction of FDI in the region. The level of regional economic development and R&D investment have a significant indirect impact on the introduction of FDI in surrounding areas, and economic openness has a significant impact on the introduction of FDI in all regions.