An Experiential Analysis Of The Effect Of Environmental Regulation On FDI

Jiangsu Province has made tremendous economic progress over the past thirty years since the reform and opening up, in the year of 2008, the amount of GDP of Jiangsu province reached 3,000 billion yuan, and the foreign direct investment enterprises have made great contributions to this progress. Although the great achievements in the economy has been made, the problem of environmental pollution in Jiangsu Province has become increasingly prominent, and large quantities of industrial waste water, waste gas, solid waste were discharged into the environmental media ,which damaged the living environment of residents and the natural ecological environment. In order to curb this trend, the state adopted a series of local environmental regulatory measures, both executive orders and means of economic incentives, these measures have achieved some results. As you know, Jiangsu Province is a province of externally oriented economy, so we closely concern whether stringent environmental regulations will affect the enthusiasm of foreign direct investment and even drive away the existed foreign investment or not?This article initially deals with the mechanism of environmental regulations impacting on FDI. Beginning with defining the environmental regulations, this paper studies, both positive and negative, respectively, the mechanism of environmental regulation impacting on FDI. On the one hand, environmental regulations affect FDI by eliminating the impact of externalities; on the other hand, environmental regulations affect FDI based on the "Porter hypothesis". Through the analysis of these two areas, we find the potential effect that environmental regulations affect FDI.Secondly, in order to explain the relationship between foreign direct investment in Jiangsu Province and environmental pollution, the relationship between environmental regulation and FDI, the article introduced foreign direct investment in Jiangsu Province, including the history of the status and trends, the situation of environmental pollution in Jiangsu Province, the situation of environmental regulation, and analyze the relationship between environmental pollution and FDI.Furthermore, this article made an empirical analysis for the environmental regulations impacting on FDI. First, finds a better overall indicator of regulation by using the method of principal component analysis, and then in order to check the relationship between environmental regulations and FDI, we examines the correlation between this indicator and FDI by using the method of Granger Causality.Finally, this paper made a conclusion and offered some policy recommendations.This paper will help to know the situation of environmental regulations Jiangsu Province, and help to deal with the relation between environmental regulation and FDI, and has some practical significance in guiding us how to attract investment in the situation of tightening of environmental pressure and economic pressure.