Environmental Regulation And China’s Outward FDI

Since the 21 st century,with the continuous promotion of the "Going Abroad" strategy,China’s outward foreign direct investment(OFDI)has maintained a stable growth trend,playing an essential role in adjusting China’s economic structure and realizing high-quality economic development.At the same time,in economic globalization,the development of China’s OFDI has an important impact on the cross-border flow and allocation of global capital.With the development of the world economy,environmental issues such as environmental pollution and resource shortage have become an essential challenge for the sustainable development of countries worldwide.In order to address environmental protection issues,governments around the world have continuously increased environmental supervision.In terms of China’s development,environmental issues have become increasingly prominent under the "extensive economic growth pattern" since the Reforming and Opening.In order to achieve sustainable development,China has continuously promoted the construction of ecological civilization,and the green development concept of "Clear waters and green mountains are as good as mountains of gold and silver",strengthening the establishment of environmental regulatory systems and the implementation of environmental regulations.With the strengthening of environmental regulations at home and abroad,the importance of environmental standards in various international economic agreements has also increased,and the impact of environmental regulations on cross-border capital flows has gradually emerged.Studying the impact of environmental regulations on China’s cross-border capital flows is significant for further realizing the "win-win" of China’s economic development and ecological civilization construction,promoting high-quality development and green transformation and upgrading of China’s foreign investment.Based on this,this paper takes "the effect of environmental regulations on China’s OFDI" as the research topic,combining domestic and foreign environmental regulations,applying China’s OFDI data to discuss the following issues:(1)Based on domestic macro perspective,this paper studies how China’s regional macroenvironmental regulations affect the city-level OFDI;(2)Based on the domestic micro perspective,this paper studies how different market incentive environmental regulation tools affect the OFDI decisions at the micro-enterprise level;(3)Based on the perspective of the host country,this paper studies whether the differences in environmental regulations between host countries will significantly affect the locations of China’s OFDI.By exploring the above issues,this paper adds new empirical evidence for the effect of environmental regulation on China’s OFDI,enriching the stream of literature and providing policy implications for the concept of "Innovation,Coordination,Green,Open and Sharing" and the realization of a new pattern of economic opening up.This study consists of seven parts,which are based on the continuous development of China’s OFDI and the constantly tightening environmental regulations at home and abroad,investigating the effect of environmental regulations on China’s OFDI from the perspective of the home country,the host country,and the macro and micro levels.The main contents of each chapter are as follows:The first chapter is the introduction of this paper,which briefly reviews the development of China’s OFDI since the Reform and Opening up,as well as the practical requirements of severe environmental problems at home and abroad,leads to the topic of this paper,and explains the theoretical value and practical significance.This chapter also systematically shows this main research framework and writing arrangement of this paper,introduces the theoretical and empirical research methods applied,and puts forward the main contributions.The second chapter is the theoretical basis and literature review related to this study.According to the topic of this paper,this chapter combs the home country motivation and host country factors in China’s OFDI from the perspective of theoretical research and empirical research.Besides,this chapter tracks the relevant literature on the effect of environmental regulation on OFDI,summarizing the theoretical and empirical points proposed by the existing literature,and sorts out the deficiencies and gaps in the existing literature.The third chapter introduces the background of this study.It systematically expounds on the development of environmental regulations of China and other countries,and the development and current situation of China’s OFDI.From the implicit relevance exsiting between environmental regulation and OFDI in the reality,this chapter builds the background for the follow-up empirical research and further practical significance.The fourth chapter takes the regional macro-environmental regulation of China as the background,based on China’s OFDI at the city level,investigates the effect of strengthening macro-environmental regulation on OFDI at the city level.Taking the implementation of China’s 2012 Ambient Air Quality Standard(2012),applying the event study,the chapter finds that strengthening domestic macro-environmental regulations would significantly promote China’s OFDI at city level.In addition,from the futther analysis,this chapter reveals the heterogeneity effects of domestic environmental regulations on OFDI according to industry pollution and firms’ ownership.Considering the heterogeneity of industry pollution,environmental regulation would significantly promote the OFDI of polluting industries with high environmental protection costs,while it doesn’t show such effect on non-polluting industries’ OFDI;Considering the heterogeneity of firms’ ownership,domestic environmental regulations will significantly increase the OFDI from non-stateowned enterprise(non-SOE),while it doesn’t show such effect on state-owned enterprise(SOE).By further investigating the moderating role of the city’s business environment,this chapter finds that healthy commercial market competition,less corruption of local government,and friendly international city relationship would significantly promote the positive role of environmental regulation on China’s OFDI.The fifth chapter starts with China’s micro-environmental regulation tools and studies the impact of China’s market incentive environmental regulation tools on listed firms’ OFDI.Based on China’s two main market incentive environmental regulation tools – "Environmental subsidies" and "Pollution discharge fee",this chapter applies the fixed-effect model and finds that both of the above market incentive environmental regulation tools can significantly promote enterprises’ OFDI,but the mechanisms are different.Environmental subsidies will provide special compensation for enterprises’ environmental protection behavior,alleviating the enterprises’ environmental protection pressure,and thus promoting firms’ OFDI through the "resource subsidy" effect.The pollution discharge fees increase the environmental compliance costs,thus enterprises emerging the motivation of OFDI by "cost avoidance".Further study shows that the promotion of different environmental regulation tools on OFDI is affected by the heterogeneity of enterprise characteristics.The pollution discharge fees will significantly promote the OFDI of enterprises with low financing constraints,high technology development level,and in the pollution industry.While the environmental subsidies will significantly promote the OFDI of enterprises,with high financing constraints,low technological development level,and in the clean industry.The sixth chapter explores the effect of host countries’ environmental regulation on the location of China’s OFDI and whether this effect has changed dynamically after implemention the "the Belt and Road" initiative,based on the macro-environmental regulations of the host country and China’s OFDI at the national and industrial levels.From the national level,the strict environmental regulations of the host country would bring certain political and institutional risks,while from the industry level,the strict environmental regulations of the host country cause higher environmental compliance costs for polluting industries.Therefore,based on the "policy motivation" and "cost motivation",the more relaxed environmental regulations of the host country will become a significant comparative advantage in attracting China’s OFDI,especially the OFDI from polluting industries.In addition,with the implementaition of "the Belt and Road" initiative,the motivation of pollution industry avoiding the environmental compliance cost in host countries has weakened.Loose environmental regulation of host country is no longer a significant factor attracting China’s OFDI from pollution industries,and this effect is more significant for the OFDI towards the "the Belt and Road" initiative cooperative countries.The seventh chapter includes thes conclusions and policy implications.This chapter summarizes the empirical results of the above three parts and puts forward the policy implications.First,within capitalist globalization,while introducing foreign capital,host country should establish and improve the foreign investment environmental supervision system,and reduce the environmental regulation risks within the system for foreign capital.Second,enhance domestic environmental protection and encourage enterprises’ green investment and green innovation,thus promoting the green transformation and upgrading of China’s OFDI.Third,according to the industry characteristics,efficiently formulating differentiated environmental support policies and environmental regulations,moderately increase the financing support for OFDI.Besides,develop the synergy connection between environmental regulation and "Going Abroad" policy,promoting the development of high-quality OFDI.Finally,based on the empirical findings and further practical development requirements,this paper puts forward feasible research prospects in the future.Compared with the existing literature,the main contributions of this paper are as follows.First,the existing literature usually takes the perspective from either the host country or the home country.Howeve,this paper studies from both perspectives of host country and also the home country,providing a more comprehensive analysis framework for the strand of literature.Second,this paper also combines the macro and micro levels,exploring the impact of local environmental regulations on OFDI at the urban level,and also internalizing the external environmental regulation into the production of enterprises,investigating how the market incentive environmental regulation tools affects the Chinese firms’ OFDI.Third,based on the dynamic development perspective,this paper explores the dynamic development of the effect of environmental regulation on China’s OFDI under the "the Belt and Road" initiative,providing empirical evidence and policy implications for green transformation and upgrading of China’s OFDI.Finally,combined with the multiple research perspectives this paper provides empirical evidence for the central government,local government and enterprise managers,and puts forward and policy implications for comprehensively promoting China’s green sustainable development.