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Pollution abatement cost savings and FDI inflows to polluting sectors in China

Published online by Cambridge University Press:  01 December 2007

WENHUA DI
WENHUA DI*
Affiliation:
University of Texas at Dallas, School of Economic, Political and Policy Sciences, P.O. Box 830688, GR 3.1, Richardson, Texas 75083-0688. Tel: (972) 883-4961. E-mail: wenhua.di@utdallas.edu
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Abstract

This paper uses a nested logit model to examine whether potential pollution abatement cost savings adjusted by institutional and socio-economic conditions influence the location choices of Foreign Direct Investment (FDI) among Chinese provinces. It incorporates individual polluting firms’ characteristics instead of looking only at location attributes. The results show that (i) FDI firms in polluting industries tend to locate in provinces with higher potential abatement costs savings adjusted for local environmental regulation; (ii) relatively dirtier firms are more likely to locate in less developed provinces or provinces with fewer similar polluting industries; (iii) firms in pollution-intensive industries are more sensitive to regulation and development status than firms in non-polluting industries; and (iv) firms tend to locate in provinces where they have more bargaining power with local governments. These findings suggest the existence of domestic pollution havens in China.

Type
Research Article
Information
Environment and Development Economics , Volume 12 , Issue 6 , December 2007 , pp. 775 - 798
Copyright
Copyright © Cambridge University Press 2007

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