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Environmental Policy and the Location of Foreign Direct Investment in China

Christer Ljungwall and Martin Linde-Rahr
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Christer Ljungwall: China Centre for Economic Research

Governance Working Papers from East Asian Bureau of Economic Research

Abstract: This paper introduces an environmental policy variable, i.e. the provincial pollution levy paid by an average firm, and measure its impact on the foreign investors' location decisions over the 1987 to 1998 period. We argue that less developed regions in China are more inclined to sacrifice environmental policies as an instrument to attract foreign direct investment (FDI). National level results show that stringent environmental policies have insignificant effect on foreign investors' location decision, and that transportation, economic growth, and regional location matters more. At the provincial level, stringent environmental policies reduce FDI in the less developed regions.

Keywords: foreign direct investment; environmental policy (search for similar items in EconPapers)
JEL-codes: C23 E24 F21 H25 O53 Q28 (search for similar items in EconPapers)
Date: 2005-12
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Citations: View citations in EconPapers (7)

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