Effects of China’s OFDI on Host Countries’ Environmental Quality

Liu Yubo (刘玉博) and Wu Wanzong (吴万宗)
1 Institute of Urban and Demographic Studies, Shanghai Academy of Social Sciences, Shanghai, China 2 School of International Economics and Trade, Shanghai Lixin University of Accounting and Finance, Shanghai, China
Abstract: From a FDI source country perspective, this paper reveals the effect of
Chinas OFDI on host countries’ environmental quality. Based on the Copeland-Taylor
model, this paper creates a theoretical mechanism to demonstrate how Chinas OFDI affects
host countries’ pollution intensity and environmental quality and carries out an empirical
analysis based on Chinas OFDI data of 2003-2014 and the economic development index
data of 168 host countries. Since Chinas OFDI is differentiated for countries of various
income levels, this paper fUrther conducts a sub-sample empirical test on the income level of
host countries. The result shows that Chinas OFDI growth generally induces an increase in
total pollution emissions in host countries but significantly reduces per capita emissions and
thus improves local environmental quality. Sub-sample regression result shows that whether
in terms of total or per capita emissions, Chinas OFDI has a much more significant effect
in improving the environmental quality of high-income countries.
Keywords: OFDI, environmental quality, Copeland-Taylor model
JEL Classification: F21, F64

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