The Effect of FDI on Host Country's Environmental Pollution: Evidence from Chinese Cities

With the increasing global competition, people worried that most foreign-funded enterprises have comparative advantage in pollution-intensive products due to the relatively relaxed environmental regulation and lax enforcement in China. This study examines the relationship between the foreign direct investment (FDI) and local pollution in china. Our results find that a city received more FDI may be not lead to higher pollution. In fact, FDI have a beneficial effect on local environment. Policy-makers should be to attract more foreign investment that openness could improve development China's environment by increasing local income, introducing more energy efficient production technology, and increasing competition and diving out less efficient factories. This suggests that the market-oriented economic reform improve the environment.