Heterogeneous Spatial Effects of FDI on CO2 Emissions in China

• Published in: Earth's future Vol. 10; no. 1
• Main Authors: Lin, Hang, Wang, Xingyu, Bao, Ge, Xiao, Huijuan
• Format: Journal Article
• Language: English
• Published: Bognor Regis John Wiley & Sons, Inc 01.01.2022; Wiley
• Subjects: Agricultural production; Carbon; Carbon dioxide; Carbon dioxide emissions; Climate change; CO2 emissions; Coexistence; Differential equations; Economic analysis; Economic development; Economic growth; Economic models; Emissions; Emissions control; Emitters; Environmental quality; foreign direct investment; Global climate; Heterogeneity; Hypotheses; Industrialized nations; International financing; Literature reviews; Partial differential equations; Pollutants; Pollution; pollution Halo; pollution Haven; spatial econometric model; spatial spillover effects; China
• ISSN: 2328-4277; 2328-4277
• DOI: 10.1029/2021EF002331

As the world’s largest CO2 emitter, China’s emission reduction is the key to mitigating global climate change. Global investment capital, as a significant influencing factor of emissions, greatly contributes to China’s economic growth and stimulates frequent interprovincial trade since the reform and opening. However, the spatial correlation of foreign investment and CO2 emissions across Chinese provinces is rarely considered. This paper explores the role of foreign direct investment (FDI) in emission reduction in China during 2004–2015 using the spatial Durbin economic models with two‐way fixed effects. Then, the partial differential equations decomposition of the local and spatial spillover effects is conducted for capturing the marginal effects of influencing factors. Results show that FDI contributes to emission reduction for the whole country, whereas interprovincial transmission and intra‐provincial transmission show significant heterogeneity. Specifically, FDI increases emissions in host areas, while FDI provides positive environmental externalities to adjacent areas through spatial spillovers. Our findings provide a new perspective to explain the coexistence of the “Pollution Haven” and “Pollution Halo” theories in a country. Also, the exploration of spatial spillover effects of FDI on emissions can provide a reference for other countries with rising trade and investment flows to promote collaborative emission reduction. Key Points Local effects of foreign direct investment on emissions are positive, while spatial spillover effects are negative The coexistence of the “Pollution Haven” and “Pollution Halo” theories in a country is examined Results help promote collaborative emission reduction across regions with trade