Foreign direct investment, governance, and the environment in China: regional dimensions

This thesis includes four empirical studies related to foreign direct investment (FDI), governance, economic growth and the environment. We firstly investigate the existence of the so called pollution haven hypothesis (PHH) in China, i.e. the impact of regional environmental regulations (ER) on FDI inflows. We then examine the other determinants of FDI: regional government effort to tackle corruption and government efficiency. It then extends the methodology of the first two studies and revisits the PHH issues by treating ER as endogenous. Finally, we observe the effects of economic growth and foreign direct investment on the environmental quality across Chinese cities. After addressing the weaknesses in previous literature, our findings provide the following results. First, an intra-country pollution haven effect does exist in China. Such an effect is also found when ER is treated as endogenous but not robust for the sensitivity checks using different instrumental variables and estimators. Second, FDI is attracted to regions that have made more effort on fighting against corruption and that have more efficient government. Third, government variables do not have a significant impact on ER. Fourth, economic growth has a negative effect on environmental quality at current income levels in China. Finally, foreign investment has positive effects on water pollutants and a neutral effect on air pollutants. Such effects vary across pollutants and investment from different sources.