“Pollution Halo” or “Pollution Haven”? Foreign Shareholding and Cleaner Production of Domestic Polluting Enterprises: Quasi Natural Experimental Evidence From China

Sheng Liu, Runyao Peng and Xiuying Chen

International Studies of Economics, 2025, vol. 20, issue 4, 463-474

Abstract: In the context of global value chains, it is becoming increasingly common for foreign‐funded enterprises to participate in local industrial chain activities through shareholding. However, as an external force, do multinational corporations play a balancing role or a collusion role in the production process of enterprises in pollution‐intensive host countries? This study explores whether the participation of foreign capitals will drive pollution‐intensive local enterprises to realize cleaner production and how it works. We employ a staggered DID model to regress the composition of the nature of equity and the degree of cleaner production of listed firms from China. The result shows that foreign ownership can significantly drive cleaner production by promoting green technology innovation and improving the environmental management capability of domestic polluting enterprises. In addition, the stronger the degree of foreign ownership and the higher the R&D investment, the more obvious the promotional effect of foreign investment on cleaner production of local firms. Moreover, the foreign shareholding serves as a more significant element to realize cleaner production when the percentage of funds from Hong Kong, Macao, and Taiwan of China is higher. This study provides new evidence for the classic “pollution halo” hypothesis from the perspective of foreign equity holdings. In the wave of globalization, it remains important for developing countries to learn advanced environmental management concepts and clean production technologies from foreign capital.

Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:wly:intsec:v:20:y:2025:i:4:p:463-474

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