Study On The Impact Of Environmental Regulation On China’s Outward Foreign Direct Investment

Over the past 40 years of reform and opening up,China’s economy has made remarkable achievements,along with the improvement of economic strength,as an important embodiment of the "Go Out policy",China’s outward foreign direct investment activities have become increasingly frequent,which has an important impact on China’s international trade,industrial upgrading,technological upgrading and employment.According to the 2020 China’s Outward Foreign Direct Investment Report,China’s outward direct investment flows ranked second in the world,and Chinese domestic investors have set up 45,000 overseas enterprises in 189 countries(regions)around the world.However,it is undeniable that China has chosen a path of economic development coming before governance,and the extensive economic growth mode can no longer meet the needs of China’s high-quality economic development and increased environmental protection.At present,China’s coal consumption still accounts for 60%,and the unreasonable energy consumption structure has brought serious environmental problems and gradual energy depletion to China.To alleviate environmental problems,the Chinese government has continued to strengthen environmental regulations by continuously formulating,revising and improving various environmental laws and regulations.The continuous strengthening of environmental regulation is conducive to the high-quality development of China’s economy and the continuous enhancement of the innovation and competitiveness of China’s market players.China’s economy has shifted from the stage of high-speed growth to the stage of high-quality development,how to coordinate economic development and environmental protection at this stage,and promote high-quality economic development in high-level ecological environmental protection is a difficult problem that the country needs to solve.Therefore,in order to make the opening up to the outside world more coordinated with environmental protection and improve the quality of economic development,it is of great significance to study the impact of environmental regulations on China’s outward direct investment.Focusing on China’s environmental regulations and OFDI,this paper attempts to answer the following questions:(1)Is there a motivation for China’s outward direct investment to circumvent domestic environmental regulations?(2)Does the "Porter hypothesis" apply to China?Are environmental regulations and OFDI purely linearly correlated?(3)Is there any heterogeneity in the impact of different regional environmental regulations on OFDI in China?In this paper,the three indicators of unit industrial wastewater emissions,unit industrial waste gas emissions,and unit industrial solid waste emissions are used to construct comprehensive indicators to measure the intensity of environmental regulations in various provinces,taking China’s outward direct investment as the interpreted variable,environmental regulations as the core explanatory variables,and incorporating the quadratic items of environmental regulations,taking the economic development level,labor costs,resource demand,human capital,R&D investment,trade dependence,and macro tax burden as the controlled variables,and the Horsman test results show that the fixed effect panel model is more effective.The full sample regression results show that there is a significant U-shaped relationship between environmental regulations and OFDI,and the variables of economic development level,labor cost,macro tax burden,R&D investment,and resource demand are conducive to improving the level of China’s outward direct investment,while human capital and trade dependence are negatively correlated with China’s OFDI.Further,this paper obtains the "inflection point" of the nonlinear relationship by means of a fixed effect panel threshold model.When the environmental regulation is lower than the threshold value of 1.867,the smaller the environmental regulation value(the greater the intensity),the more it can promote OFDI,which is a reasonable environmental regulatory policy,which is also the environmental regulatory policy that can stimulate enterprises to carry out technological innovation according to the Porter hypothesis;when the environmental regulation is greater than the threshold value of 1.867,along with the weak environmental regulation gradually approaches the threshold value,the outward direct investment gradually becomes smaller.Considering that there may be differences in different regions,this paper performs a sub-sample regression and finds that the environmental regulations in the east and central china are negatively correlated with China’s outward direct investment,and there is a"U" relationship between the environmental regulations and China’s outward direct investment in the western region.According to the conclusions of the previous research,this paper puts forward the following policy recommendations:reduce the macro tax burden,optimize the tax structure,guide the flow of OFDI,reduce the outflow of funds caused by the pressure of the macro tax burden of market entities;increase the tax incentives for innovative enterprises,give play to the role of tax expenditure regulation,and promote the optimization of industrial structure.Actively give play to the role of the government in coordinating the relationship between environmental protection and economic development,and increase the overall environmental regulatory intensity of the whole country especially in the western region;adopt more flexible environmental regulatory policies,strengthen market-oriented environmental regulation,innovate environmental regulatory means,and increase environmental legislation and law enforcement.Distinguish OFDI motivation in different region,give full play to the comparative advantages of various localities,improve various R&D supporting facilities and systems to promote the transformation of R&D investment achievements,and at the same time increase investment in education,adjust the internal expenditure structure of education,and cultivate more high-quality talents.The innovation of this paper is mainly that in terms of research objects,relatively little research has been done on the impact of home country environmental regulations on China’s outward direct investment and the conclusions are quite different,therefore,this paper studies the impact of home country environmental regulation on China’s outward direct investment,which can enrich the existing research to a certain extent.In terms of research methods,this paper believes that environmental regulation has an impact on OFDI,and considering the nonlinear relationship between environmental regulation and technological innovation in the literature,on the basis of theoretical and mechanism analysis,this paper also believes that environmental regulation and OFDI have a nonlinear relationship,so the quadratic term of environmental regulation is introduced to test the existence of nonlinear relationships,and try to use the threshold model to find the "inflection point".The shortcomings of the study are that the relationship between the two has not been analyzed from a micro-enterprise perspective,and it is also impossible to draw conclusions and make reasonable recommendations for different types of environmental regulations.