How do FDI and technical innovation affect environmental quality? Evidence from China

Abstract

Foreign direct investment (FDI) is an important driving force for economic growth and technological innovation, but it also brings environmental pollution problems along with economic development. From the perspective of technological innovation, the impact of FDI on China's environmental pollution deserves further study. With the spatial econometric tools employed to account for the potential spatial dependence of environmental pollution, this study uses the panel data of 30 province-level units in China from 1998 to 2016 to investigate the impact of FDI and technological innovation on environmental pollution. The results show that increased FDI can reduce environmental pollution, confirming the existence of the "pollution halo hypothesis"; technological innovation can reduce the emissions of sulfur dioxide and smoke dust but increase the chemical oxygen demand. Therefore, vigorous introduction of foreign capital is good for sustainable development for government, but it is also necessary to pay attention to screening and identifying environment-friendly enterprises with advanced production technology and management experience and to reject high-pollution and high-energy-consuming enterprises eliminated by developed countries.

Keywords: Environmental pollution; Foreign direct investment (FDI); Spatial Durbin model; Spatial interdependence; Technological innovation.