VAR analysis of foreign direct investment and environmental regulation: China's case

Wen-Bin Peng (), Kun Tian, Yin-Hua Tian and Guo-Cheng Xiang
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Wen-Bin Peng: Faculty of Business School, Hunan University of Science and Technology, China
Yin-Hua Tian: Faculty of Business School, Hunan University of Science and Technology, China
Guo-Cheng Xiang: Faculty of Business School, Hunan University of Science and Technology, China

Business and Economic Horizons (BEH), 2011, vol. 5, issue 2, 13-22

Abstract: This paper employs impulse response function of VAR model and the estimation variance decomposition method to investigate the two-way dynamic relationship between environmental regulation and FDI during 1985 to 2009. The result of generalized impulse response shows the impact effects of environmental regulation exerting to FDI become less and less in long-term, which verifies “hypothesis of pollution haven”. The inverse U-shape curve of “environmental regulation - FDI” depends on the choice of regulation indicators. Furthermore, the positive impulse response shows the inflows of FDI would cause the deterioration of ecology and the intervene of governments, which gives pressure to the transformation of environmental regulation standard.

Keywords: Foreign direct investment; environmental regulation; VAR. (search for similar items in EconPapers)
JEL-codes: Q5 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (1)

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