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J Environ Manage. 2014 Mar 15;135:81-90. doi: 10.1016/j.jenvman.2014.01.013. Epub 2014 Feb 10.

Foreign direct investment, institutional development, and environmental externalities: evidence from China.

Author information

  • 1Department of Marketing, School of Business, Hong Kong Baptist University, Kowloon Tong, Hong Kong. Electronic address: dtwang@hkbu.edu.hk.
  • 2Department Geography, The University of Hong Kong, Pokfulam, Hong Kong. Electronic address: wychen@hku.hk.


The question of how foreign direct investment (FDI) affects a host country's natural environment has generated much debate but little consensus. Building on an institution-based theory, this article examines how the institutional development of a host setting affects the degree of FDI-related environmental externalities in China (specifically, industrial sulfur dioxide emissions). With a panel data set of 287 Chinese cities, over the period 2002-2009, this study reveals that FDI in general induces negative environmental externalities. Investments from OECD countries increase sulfur dioxide emissions, whereas FDI from Hong Kong, Macau, and Taiwan shows no significant effect. Institutional development reduces the impacts of FDI across the board. By focusing on the moderating role of institutions, this study sheds new light on the long-debated relationships among FDI, institutions, and the environments of the host countries.

Copyright © 2014 Elsevier Ltd. All rights reserved.


China; Environmental externalities; Foreign direct investment; Industrial sulfur dioxide emission; Institutional development

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