Producer service foreign direct investment and pollution in China

Bo Chen, Han Wang and Jishun Zhou

The World Economy, 2022, vol. 45, issue 10, 3294-3311

Abstract: The impacts of services, especially the producer services, on pollution have received little attention so far. In this paper, we propose the hypotheses that producer service foreign direct investment (PS FDI) would have direct impact on pollution, in a way that is similar to manufacturing activities. We test our hypotheses using Chinese provincial data from 2008 to 2018. Our findings show that PS FDI does affect pollution in a significant way, and the results remain robust under various tests. We also identify significant mediating effect, whereby PS FDI not only directly affects pollution levels, but also indirectly does so via its impacts on manufacturing activities. Besides localised effect, we show that PS FDI exhibits spatial spillover effect by influencing pollution levels in neighbouring provinces. Finally, we find that manufacturing activities magnify the impact of PS FDI on pollution locally, but mitigate its spatial spillover effect.

Date: 2022
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