The Impact Of China’s Investment On Environment Evidence From Spatial Econometric Analysis

Since the reform and opening up, the contradiction between development and environment has become increasingly acute. As the main driving force of development, China’s fixed assets investment (FAI) has grown rapidly. At the same time, China’s energy consumption surged and environment deteriorated. How to balance the increase of FAI and the environmental degradation is a great challenge for China. However, existing research on the relationship between FAI and environmental quality is scare. The purpose of this paper is to make deep and systematic analysis on the relationship between investment and environmental quality with full consideration of spatial dependence. First, from the perspective of FAI and environmental investment, the most appropriate model spatial durbin model is employed based on strict hypothesis tests. The envidence from provincial panel data from 1995-2012 indicates that the spatial dependence indeed exists between CO2/SO2 and economic growth, FAI will aggrandize the emissions of both CO2 and SO2, the investment on industrial pollution control will reduce the SO2 emissions but have no effect on CO2 emissions. Then from the perspective of FAI and foreign direct investment (FDI), this paper chose SO2 and soots as environmental index and used a two-equation model to divide the total impacts of FAI and FDI on emissions into direct and indirect impacts. After taking consideration of spatial dependence, potential endogeneity and introducing dynamics, GMM estimation results suggest that the total impacts of FAI on SO2/soots emissions are positive, concretely, the positive direct effect of FAI on pollutions dominates the negative indirect effect. However, for FDI, both direct and indirect impacts on pollutions are significant negative. From these results, several relevant policy implications could be made as follows:change the pattern of growth; optimize the structure and adjust the direction of FAI; continue introducing FDI and exploit the advanced clean technology brought by foreign enterprises; improve regional cooperation to address environmental issues and climate change.