Title: Examining the relationship between environmental regulations and foreign direct investment level: evidence from China

Authors: Hadia FakhrEldin; Yomna Elsawy

Addresses: The British University in Egypt, Elsherouk Road, Elsherouk 11837 Cairo, Egypt ' The British University in Egypt, Elsherouk Road, Elsherouk 11837 Cairo, Egypt

Abstract: This study examines the relationship between the environmental regulations and the FDI levels in China. The environmental regulation stringency is measured using emissions and other energy consumption data. The study is based on the pollution haven hypothesis and additionally applies direction of causality tests. The main objectives of the study are: to measure the environmental regulatory stringency and to identify the relationship between the application of the environmental restrictions and the level of FDI in China in the period from 1979-2013. The study adopts a quantitative approach; a correlation matrix, a multiple regression model, and granger causality are used first; then a time series multiple regression model is conducted; afterwards the granger causality is applied. The results of the statistical analysis show a negative relationship between environmental regulations and FDI levels and a negative bidirectional causal relationship between the emissions and energy consumption variables and the FDI levels. Thus, countries aiming at increasing their FDI levels need to consider their environmental regulations. In addition, the study provides useful information to other developing countries which are still in less developed stages, as it can have policy implications on increasing the FDI levels and on the environmental regulations.

Keywords: foreign direct investment; FDI; environmental regulations; China; international business.

DOI: 10.1504/IJBG.2018.093593

International Journal of Business and Globalisation, 2018 Vol.20 No.4, pp.519 - 536

Received: 01 Dec 2016
Accepted: 23 Mar 2017

Published online: 30 Jul 2018 *

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