The Heterogeneous Effects of FDI and Foreign Trade on CO 2 Emissions: Evidence from China

Abstract

The environmental impacts of foreign direct investment (FDI) and foreign trade have attracted much attention recently. This paper employs panel quantile regression to explore the effects of FDI and foreign trade on Chinese provincial CO 2 emissions for the period of 1997-2014. The results indicate that the effect of FDI on CO 2 emissions is negative and significant except at the 5 th and 10 th quantiles. Foreign trade has a significant negative effect on CO 2 emissions at upper quantiles, and the degree of the effect increases gradually with the increase of CO 2 emissions. The results also suggest that the inverted U-shaped environmental Kuznets curve (EKC) is valid only in the least and most polluted provinces. Nevertheless, the positive indirect effects of FDI and foreign trade on CO 2 emissions are greater than the negative direct effects; thus the total effects are positive. Finally, several policy implications are proposed for China based on the empirical results obtained.