Impact of regional environmental regulations on taiwanese investment in mainland china

Abstract

Based on the perspective of regional differences and decentralization, this article investi-gated the impact of environmental regulations on Taiwanese investment in mainland China from theoretical and empirical perspectives, and analyzed whether local governments are competing to lower environmental standards to attract Taiwanese investment so as to maintain their comparative advantages. This paper constructed a theoretical model through a two-stage game model. With the panel data of each province in Mainland China from 2006 to 2016, the theoretical propositions were empirically tested through the system GMM estimation method. The results show that the environmental regulation policies adopted by the local governments in the mainland have a signifi-cant inhibitory effect on the investment volume of Taiwan-funded enterprises, and the interaction between environmental regulations and local tax burden levels also has a negative effect on Taiwanese investment. Local governments have the motive to reduce environmental regulations to attract investment.