Empirical Research On The Relationship Among FDI, Economic Growth And CO₂ Emission In China

The growth of foreign direct investment was amazing in the past 30 years. China has drawn the inflow of FDI worldwide due to its sheer size and attractive economic growth. It has since become one of the major host countries with inflow of FDI. The inflow of FDI increases constantly. Apparently while promoting host countries'economic growth, FDI may have negative effect on the host countries. Especially when those countries attract FDI by low environmental standard, FDI inflows might cause a series of environmental questions. Therefore, as a developing country, does the inflow of FDI have any negative effect on China? Particularly, how the FDI inflows influence China's carbon dioxide emissions?China has become the second largest carbon dioxide emission country in the world, accounting for 20% of the total emissions. In the weather conference in Copenhagen in December 2009, China has promised to deduct 40-45% carbon dioxide emissions per GDP by the year 2020. Therefore, how to harmonize the relationship between FDI, economic growth and carbon dioxide emissions, to adapt FDI and economic growth to sustainable development remains this article's core issue.The relationship between FDI, economic growth and carbon dioxide emissions is a complicated system. In the past 30 years'reform and opening up, FDI inflows accelerate China's economic growth. But how FDI inflows influence China's carbon dioxide emissions? And how economic growth influences China's carbon dioxide emissions? Presently our growth pattern is shifting from depending on foreign demand to home demand. We are experiencing rapid urbanization. And how urbanization influences China's carbon dioxide emissions? This article studies the relationship between FDI, economic growth and carbon dioxide emissions by empirical evidence.First of all, this paper theoretically analyzed the relationship between FDI, economic growth and carbon dioxide emissions and deduced the following hypothesis:l.The scale effect of FDI increases carbon dioxide emission, the composition effect increases carbon dioxide emissions, while the technical effect decreases carbon dioxide emissions.2. FDI, economic growth and carbon dioxide emissions have positive correlation. These hypothesis needs to be tested by empirical research.This article analyzed the relationship between FDI, economic growth and carbon dioxide emissions by time series data and found that FDI inflows alleviate CO2. This result overturned the hypothesis "The scale effect of FDI increases carbon dioxide emissions". This is due to FDI spillover effect. FDI introduced both capital and technology. Technology from developed countries is usually more advanced than local process. The use of foreign technology to some extent alleviates China's carbon dioxide emissions. Economic growth, however, has no systematic effect on carbon dioxide emissions. And this result overturned the hypothesis "economic growth and carbon dioxide emissions have positive correlation".This paper analyzed the composition effect and technical effect of FDI to influence carbon dioxide emissions. Granger Causality Test indicates that FDI is not the Granger Cause of the carbon intensity of energy structure and the intensity of energy consumption. Johansen Cointegration Test found that FDI has long-term negative Cointegration correlation with the carbon intensity of energy structure and the intensity of energy consumption. Furthermore, Impulse impact analysis showed that FDI has negative impulse impact on the two intensities. As a result, FDI alleviated carbon intensity of energy structure and the intensity of energy consumption. It shows that FDI have a significant positive impact on the energy-saving through composition effect and technical effect. Which overturns the hypothesis of "composition effect increases carbon dioxide emissions" and verifies the hypothesis of "technical effect decreases carbon dioxide emissions".This paper studied China's Environmental Kuznets Curve. A number of functional forms of the relation between CO2 emissions and GDP were tested. This result suggests that Chinese CO2 emissions are exemplified by an N-shaped relationship with GDP. Economic growth does not necessarily reduce CO2 emissions nor enhance CO2 emissions. The key is to perfect the environmental protection system. This paper applies panel cointergration and panel-based error correction models to investigate the causal relationship between CO2 emissions and total output of 26 industries in the second sector. The empirical results show that there is short run and long run reciprocal causality between CO2 emissions and total output of the second sector.Now China is experiencing a shift from depending on foreign demand to internal demand. The process of urbanization is accelerating. This paper applies cointergration and Causality Test to investigate the causal relationship between urbanization, economic growth and CO2 emissions. It suggests that urbanization is the granger cause of CO2 emissions, while economic growth is not the granger cause of CO2 emissions.