The comprehensive influence of FDI considering environmental … · 2015. 6. 25. · environmental pollution. Considering the economic and environmental factors, we estimated 280

The comprehensive influence of FDI considering

environmental regulation

Yue Shujing* Hu Yaoyu Yang Yang School of Economic & Management, Southeast University, China Nanjing

Abstract: FDI not only affects the host country's economic growth, but also affects the

environment. Under the background of reality that in pursuit of green development, we need to

take the comprehensive consideration of FDI performance from economic growth and

environmental pollution. Considering the economic and environmental factors, we estimated 280

cities' green development efficiency in China from 2003 to 2012, and we treated green efficiency

as a comprehensive measure of economic growth and environmental pollution in China to study

the effects of FDI on the development of China. Results were: Generally, FDI has a negative effect

to city green development efficiency, which means FDI is not conducive to the green development

of Chinese cities. Further analysis shows that, from the perspective of economic growth, FDI is

not conducive to economic growth; from the perspective of environmental pollution, FDI is

conducive to the environmental protection.

Key Words: Green Development, Foreign Direct Investment, Economic Growth,

Environmental Pollution

1. Introduction

Since the reform and opening policy, China's economy has created remarkable growth, which

benefits from the promoting functions of fundamental factors. Foreign direct investment (FDI) is

one factor. As the main indicator of the degree of opening up, FDI can not only have an impact on

economic growth of the host country, but also exert an influence on environmental problems of the

host country. From the perspective of economic growth, on the one hand, a huge influx of FDI

usually introduce the capital element, advanced production technology and mature management

experience that is necessary for industrial development into the host country, which has a positive

effect on host country 's economic development and innovation activities ( Hu and Jefferson, 2001;

Chueng and Lin, 2004). On the other hand, it will also intensify domestic market competition in

the host country, crowd out domestic R&D investment, reduce domestic enterprises‘ innovation

enthusiasm, and even make local enterprises dependent on technology heavily, finally do harm to

the innovation capacity of the host country. From the perspective of environmental protection,

pollution halo hypothesis considering that the environmental effect of FDI should be commented

on positively says: advanced technology brought by FDI, especially the cleaner production

technology, can improve local environmental standards. While environmental technology spillover

can bring local companies notable benefits. Pollution haven hypothesis considering that the

environmental effect of FDI should be commented on negatively says: due to harsher

environmental regulations in developed countries, multinational companies pursuing interests will

transfer high-polluting and heavy energy-consumption industries to developing countries in order

*Corresponding author. E-mial address: [email protected] 。

to reduce their treatment costs and prime costs (Taylor, 2004), leading to host country‘s

environmental pollution.

Therefore, faced with the economic and environmental effects brought by FDI, how to make

a judgment to FDI in the process of building an ecological civilization to realize economic growth

and environmental protection in China? Furthermore, the impacts of economic growth and

environmental pollution will be discussed in this paper.

The economic and environmental impacts brought by FDI have attracted scholars‘ attention.

The existing literature on the relationship between economic development and FDI discusses

whether FDI can bring in advanced technology and promote economic development through

different empirical models. With regard to the relationship between FDI and environmental

pollution, various documents carry on empirical analysis based on the situation of pollution haven

hypothesis from the perspective of state, industry and region, and discuss the effect of

environmental regulation on FDI. Present literature explores the impact of FDI on the host country,

considering economic and environmental impacts separately. Very few works combine economic

influence with environmental influence to research FDI. In addition, most literature is based on the

perspective of China's province and fail to use city angle to study FDI. Because of a wide gap

between different cities in China, an analysis of the province may cover the difference of different

cities in the same province.

In view of this, the paper takes 280 prefecture-level cities in China as research objects, builds

comprehensive index reflecting economic and environmental effects of FDI, and explores the

effects of FDI on economic and environmental development.

2. Literature review

After the 1970s, China adopted the open door policy, with numerous FDI flowing into China ,

Foreign direct investment(FDI) has produced a series of influence in China's economic

development and environment, that cannot be ignored. Foreign direct investment (FDI) to the host

country's economic, environmental effect problem has been widespread concern of scholars.

How the effect FDI have on China's economic growth? On one hand, most studies

concluded that the FDI on China's economic growth has a significant role in economic. Wang

Chengqi and Zhang Jianhua (2002) investigated the factors that influence the relationship between

foreign direct investment (FDI) and economic growth in China. The results show that the host

country's economic policies on FDI and economic growth has a significant impact, in

economically developed areas, business competition is particularly intense between the impact of

FDI on economic growth, and the influence is more significant[1]

;Liu Hong, Li Shusheng (2013)

According to 1985-2010 time-series data, a VAR model including three variables--FDI, economic

growth and employment, shows that the FDI can promote China's economic growth and

employment, China‘s economic growth has a positive impact on FDI inflows[2]

;Ma Lijun (2013)

based on 1987-2010 years of 27 provinces panel data for three years as a stage, by constructing

endogenous growth model including FDI technology spillover effect, He incorporates the spillover

effect of FDI in the endogenous growth model, and then applies the GMM to carry out an

empirical test on the relationship between FDI and economic growth. The study found, FDI via

spillover of economic growth has been a positive role in economic growth in the presence of

provincial convergence, FDI has a positive effect on economic growth, but the lock-in effect of

FDI can block technical spillover, which would undermine the FDI contribution to economy

growth.[3]

;But on the other hand, some studies consider foreign direct investment (FDI) on

economic growth is not significant, even it has negative effect .As Luo Changyuan

(2006)according to 1987-2011 Provincial Panel Data, using a fixed effect and random effects

analysis obtained: FDI has no direct effect for promoting China's economic growth[4]

; Jin Tao and

Shen Bin (2008) are based on cross-sectional sample data in 1994-2008 years of 35 provinces,

analyzed the FDI and economic by constructing dynamic panel model, the result is obtained that

spillover effect of FDI is not obvious, the negative competitive effects produced even negative

effects. FDI differ in different regions of economic growth, there is a close relationship between

economic development and regions[5]

.

FDI produces positive or negative effect to the host country economic, simultaneously, it

would also have impact of benefit or harm on environment.

On the relationship between FDI aspects of environmental pollution, Huang Jing (2010) think

that the total effects of FDI on environment pollution through economic growth, industrial

structure and pollution abatement are positive. She analyzed the relationship between

environmental pollution FDI according 2003-2006 years of industry data. The studies shows that

FDI has a significant positive effect on environmental pollution[6]

.However, some scholars keep

negative attitude, with FDI inflows rising year by year, The economic pollution is more and more

serious ,and then some scholars believe that China has become a multinational ―pollution havens‖,

Such as Su Zhendong (2010) use 30 provinces industrial data in 1992- 2007 to test the effect of

FDI on regional environment by using the industrial liquid waste as the environment index. The

result shows that in our country FDI has significant negative influence on environment, and the

negative effect is the strongest in the east and the weakest in the west, China has become the

world ―pollution heaven‖[7]

.However, some scholars such as Chen Honglei (2006) analyses the

main factors influencing the location of foreign direct investment. According to the analysis, He

establish the establishment of foreign direct investment location choice model to empirical test. It

shows that environmental policy has little effect on the strength of foreign FDI flows. FDI doesn‘t

not show significant metastatic potential of polluting industries, and China has not become a

―pollution haven‖[8]

;Zeng Xiangang (2010) analyzes the correlation mechanism between China‘s

foreign direct investment , environmental regulation and other factors, based on the 1998-2008

China‘s 30 provinces panel data. it was found that FDI is not Granger-cause in environmental

regulation Hence , the proofs are not sufficient to support the ―pollution haven‖ hypothesis for

China[9]

.

From the above, the literature on FDI on a country's economic development and

environmental pollution, more intensive studies were made, but it can also be found that most

literatures tend to analyze the effect of FDI on economic growth or environmental pollution

unilaterally and the literature for the comprehensive development of the efficiency of FDI and

economic growth and environmental pollution in the literature is less, So, this paper attempts to

take the effect of FDI to the economic growth and environmental effects into account, in order to

more fully measure the impact of FDI on the Chinese economy performance .

3. Measurements of the urban green development efficiency

3.1 Comprehensive measurements of FDI externalities: green development efficiency

Considering that energy consumption and environmental pollution of green development

efficiency are the essence of "green + growth", both green degree of strengthening, and growth

ability to expand, will reflect on the green to promote the efficiency of development, so the green

development efficiency is much more fit to the growth of economy and the "win-win" goal of

environmental protection. Therefore, we will develop green efficiency as the comprehensive

measure of FDI economic and the environmental externalities

.

We use slacks-based measure directional distance function to evaluate the green development

efficiency. Consider each city as a decision making unit to construct the production frontier,

assuming that each city uses N inputs NN Rxxxxx ),( 321 , produce M kinds of expected

output MM Ryyyyy ),( 321 , and release I kinds of unexpected output

II Rbbbbb ),,(( 321 ; in different periods t=1,…,T, and the Input and output values of

No.k=1,…K city are ),,( ,,, tktktk byx

. According to Tone(2003)and Fukuyama etc.(2009), the

slacks-based measure directional distance function under the consideration of resources and

environment is below:

2

)(1

11

max),,,,,(

111

,,

,,,

b

i

b

iI

ix

m

x

mM

mx

n

x

nN

n

sss

byxktktktt

V

g

s

g

s

Mg

s

NgggbyxS

byx

;,;,;,..111

i

t

ik

b

i

k

k

t

ki

t

km

t

mk

y

m

k

k

t

kn

t

kn

t

nk

x

n

t

kn

k

k

t

k bsbzysyzxsxzts

i

b

in

x

nk

K

k

t

k

t

k sszz

,0;,0;,0,11

(1)

(ktktkt byx ,,, ,, ) is the input and output vector of one city, (

byx ggg ,, ) is the direction

vector, (b

i

y

m

x

n sss ,, ) represent inputs and expected output and the unexpected output slack vector

respectively, which measures the excessive use of factors, the excessive unexpected output , and

insufficient amount of the expected output. This model gives the results of the size of the

efficiency value for the green development, the smaller the value shows that the higher the

efficiency of green development is, the greater the value shows that the lower the efficiency of

green development is.

Based on 280 cities in China, we calculate the green development efficiency for each city,

and the variable representation is as follows: The expected output for each city is the local GDP;

the expected output for each city is their local dioxide emissions; the labor inputs are the

practitioners in each city; the total capital investment is the investment in fixed assets of each city.

The length of our periods is 2003 to 2012, data is all from the China city statistical yearbook and

China statistical yearbook.

3.2 Calculation results and analysis

According to the choice of the variables and the measure of the model described above,the

green development efficiency of different cities is shown in Table 1.

Table 1 The green development inefficiency of the typical cities in 2003-2012 years

category city 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 average

value

The

east

part

Beijing 0.81 0.87 0.42 0.35 0.35 0.31 0.29 0.26 0.46 0.43 0.46

Tianjin 0.51 0.51 0.41 0.41 0.43 0.43 0.38 0.35 0.43 0.43 0.43

Shijiazh

uang 0.47 0.48 0.44 0.45 0.48 0.48 0.48 0.47 0.47 0.47 0.47

Shenyan

g 0.43 0.45 0.38 0.40 0.40 0.41 0.35 0.31 0.39 0.37 0.39

Shangha

i 0.43 0.43 0.37 0.31 0.33 0.33 0.26 0.20 0.34 0.37 0.34

Nanjing 0.49 0.48 0.39 0.39 0.39 0.41 0.39 0.36 0.41 0.39 0.41

Hangzho

u 0.33 0.27 0.33 0.36 0.39 0.41 0.41 0.41 0.48 0.49 0.39

Fuzhou 0.40 0.43 0.42 0.44 0.47 0.48 0.46 0.46 0.52 0.52 0.46

Guangzh

ou 0.41 0.41 0.25 0.23 0.24 0.24 0.18 0.13 0.33 0.33 0.28

Average

value 0.48 0.48 0.38 0.37 0.39 0.39 0.36 0.33 0.43 0.42 0.40

The

middle

part

Taiyuan 0.65 0.79 0.53 0.55 0.53 0.54 0.50 0.49 0.52 0.60 0.57

Changch

un 0.41 0.42 0.43 0.43 0.45 0.45 0.42 0.40 0.42 0.43 0.43

Harbin 0.51 0.52 0.41 0.43 0.46 0.47 0.45 0.44 0.49 0.51 0.47

Hefei 0.54 0.54 0.39 0.39 0.43 0.43 0.41 0.38 0.48 0.49 0.45

Nanchan

g 0.49 0.53 0.40 0.42 0.44 0.43 0.42 0.42 0.52 0.52 0.46

Zhengzh

ou 0.53 0.52 0.46 0.45 0.46 0.45 0.43 0.40 0.46 0.49 0.47

Wuhan 0.51 0.53 0.46 0.47 0.48 0.48 0.45 0.41 0.47 0.44 0.47

Changsh

a 0.50 0.52 0.41 0.40 0.42 0.40 0.35 0.32 0.34 0.19 0.38

Average

value 0.50 0.51 0.41 0.40 0.42 0.42 0.39 0.36 0.44 0.44 0.43

The

west

part

Hohehot

Municip

ality

0.54 0.55 0.44 0.48 0.39 0.45 0.39 0.38 0.40 0.40 0.44

Nanning 0.56 0.65 0.51 0.52 0.52 0.51 0.50 0.50 0.54 0.53 0.53

Chengdu 0.49 0.50 0.46 0.46 0.48 0.49 0.46 0.39 0.47 0.45 0.47

Guiyang 0.90 0.93 0.80 0.75 0.84 0.85 0.76 0.80 0.90 0.72 0.83

Kunmin 0.58 0.57 0.48 0.52 0.57 0.65 0.58 0.60 0.96 0.60 0.61

g

Xi'an 0.70 0.76 0.62 0.63 0.67 0.65 0.55 0.52 0.58 0.59 0.63

Lanzhou 0.69 0.71 0.53 0.56 0.60 0.58 0.54 0.54 0.61 0.55 0.59

Xining 0.85 0.82 0.68 0.57 0.61 0.62 0.63 0.66 0.69 0.72 0.69

Yinchua

n 1.12 1.07 0.61 0.61 0.61 0.59 0.56 0.49 0.61 0.72 0.70

Urumqi 0.64 0.58 0.46 0.46 0.47 0.47 0.46 0.45 0.42 0.49 0.49

Average

value 0.71 0.71 0.56 0.55 0.58 0.59 0.54 0.53 0.62 0.58 0.60

Note: The value in the table is the green development inefficiency. The larger the value, the lower the

efficiency of green development. The smaller the value, the higher the efficiency of green development.

As a result of the space limitation, we chose the provincial capital cities as the samples to

analyze the green development efficiency, and divided these cities into the eastern, the middle part

and the western three big regions according to the location. In Table 1,when the value is larger, the

efficiency of green development is lower, and to the contrary, when the value is smaller, the

efficiency of green development is higher. From table 1,we can see that the average values of the

three major regions‘ green development inefficiency in 2003-2012 are: 0.40,0.43,0.60. It shows

that in terms of the green development there is a gap between the eastern, the middle part and the

western ,among then, the gap between the eastern and the middle part is obviously less than the

gap between the eastern and the western, as well as the gap between the middle part and the

western. In the green development, the west of China has a large gap between the eastern and the

middle part. However, on the other hand, from the green development inefficiency values of

different regions in 2012 and 2003,we can see that in 2003,the green development inefficiency

value of the eastern is 0.02(0.23)higher than that of the middle part(the western),when the

differences between the Middle and the West is 0.21. And in 2012,the green development

inefficiency value of the eastern is 0.02(0.16)higher than that of the middle part(the

western),compared with 2003,the gap between the eastern and the middle part(the western)is

reduced by 0.02 (0.07),and the gap between the middle part and the west region is shrunk to

0.14,which is 0.06 lower than that in 2003. The data illustrates that in 2003-2012,the green

development efficiency gap between the eastern, the middle part and the western reveals a

narrowing trend, and the green development of different regions display a convergence

characteristics.

When we conduct on a further analysis of Table 1,we find that there are significant

differences between the green development efficiency of different cities in the same region. In the

east of China, the average values of the green development are low in Guangzhou, Shanghai,

Hangzhou and other cities, among them the value of Guangzhou is only 0.28, showing that the

quality of its green development is high. Instead, the inefficiency values of Shijiazhuang, Beijing,

Fuzhou and other cities are high, among them the value of Shijiazhuang is up to 0.47, when that of

Beijing and Fuzhou is up to 0.46, which is about 1.67 times than that of Guangzhou. It means

that ,in consideration of the environmental factor, the green development quality of Beijing is

lower than Guangzhou. In the middle region, the average value of urban green development

inefficiency reaches 0.57 (such as Taiyuan), far higher than other cities in the same region. As a

typical resource-based city, when Taiyuan focuses on the development of its resource intensive

industry, it inevitably will bring destruction to the local ecological environment at the same time,

which leading to the poor efficiency of green development. In the west region, the values of green

development inefficiency of different cities are generally high. For example, in 2012,the cities of

which the green development inefficiency values more than 0.5 are accounted for 70%, indicating

that in double assessment criteria of economic and environmental, the western cities still have

gaps between the eastern and middle cities in development.

4. An empirical analysis of the FDI impact on the urban green development efficiency

4.1 The influence of FDI on the urban green development efficiency

FDI not only affects the economic benefits of urban development, but also does the

environmental impact on urban development. The positive "overflow" effects on city economy of

FDI represents the promoting of the green development efficiency, and the positive "overflow"

effects on city environment also represents the promoting of the green development efficiency.

Therefore, we can use the green development efficiency as a measure of FDI performance. In the

model, The dependent variable is the green development efficiency (greeneff), FDI is the key

independent variable, and environmental regulation (eyhlqcl), perGDP (pgdp), the industrial

structure (cyjg), per capita investment in science and technology (psci) are the control variables,

the model is below:

∑ (2)

The variable selection basis and data is as follows:

The dependent variable: The green development efficiency (greeneff). Based on the input and

output efficiency of urban green development, the detailed calculation and measure method are as

mentioned above. It is important to note that the regression model of the measurement results, the

greater the dependent variable shows, the lower the green development efficiency is.

The independent variable: Foreign direct investment (FDI). Foreign direct investment is the

important form for foreign technology, knowledge flowing in, on one hand, the technology

spillovers and knowledge diffusion brought by which may have a positive impact on promoting

the green development efficiency, but on the other hand, FDI may also bring regional resources

dependent, environmental damage type industry, which may play a negative role on promoting the

green development efficiency. As the key independent variable, the data of foreign direct

investment accounted for the proportion of the local GDP.

Considering the following control variables in reference to related literature:

Control variable: Environmental regulation (eyhlqcl). Using So2 removal rate as the

measurement. The higher the So2 removal rate is, the greater of city environmental regulation is,

and strict environmental regulation can guide the enterprises to pay more attention to the clean

production technology, resulting in reducing the pollution of the environment, which promotes the

green development efficiency.

Control variable: Per GDP (pgdp). The higher the per capita GDP is, the better the region's

economic development situation is, the local government and the public environment protection

consciousness is relatively high, meanwhile they will also pay more attention to environmental

protection, which can play a positive role for the green development efficiency in the city.

Control variable: The industrial structure (cyjg). Using the second industry professionals to

measure the proportion of total employees. As mentioned above, the second industry is the main

domestic industry where FDI inflows, which is also the important source to promote the

development of urban economy, but also an important source of urban environment pollution, to

consider the economic growth, and pay attention to environmental protection of green

development in terms of efficiency, the concrete conditions of green development efficiency that

affected by industrial structure also need to be considered.

As to control variables: Per capita investment in science and technology (psci). Investment in

science and technology is the important force of promoting economic green transformation.

Increasing investment in science and technology not only improves strength of science and

technology that improve the production efficiency of economic activities, but also can promote the

promotion and popularization of green technologies, therefore it reduce the pollutant emissions

effectively, implementing the green development of city economy.

The virtual variable: Year ( ). As yearis the virtual variable, when it comes to the yeart,

the yeart =1, the other years are all 0.

Table 2 Significance Test Results of Model (2) (3) (4)

Model(2) Model(3) Model(4)

Fixed

effects

Random

effects

Fixed

effects

Random

effects

Fixed

effects

Random

effects

Foreign

direct

investme

nt (fdi)

0.514***

(4.27)

0.274**

(2.42)

-1.90e4***

(-2.00)

3.50e4***

(3.74)

-0.041***

(-3.56)

-0.054***

(-4.92)

Environ

mental

regulatio

n

(eyhlqcl)

-0.063***

(-5.25)

-0.061***

(-5.26)

-0.012***

(-10.79)

-0.011***

(-10.00)

Per GDP

(pgdp)

-3.03e-6

***

(-12.18)

-3.24e-6

***

(-14.64)

-1.37e-7

***

(-5.80)

-1.44e-7

***

(-6.59)

The

industrial

structure

(cyjg)

0.083*

(1.86)

0.087**

(2.48)

-3219.571

(-0.93)

3.0e4***

(11.34)

0.021***

(4.96)

0.023***

(6.41)

Per

capita

investme

nt in

S&T

(psci)

-8.35e-6

*

(-0.54)

-1.96e-5

(-1.30)

17.644***

(15.55)

22.714***

(19.23)

7.76e-6

***

(5.29)

7.00e-6

***

(4.83)

Fixed

assets per

capita

(repgdzc)

0.191***

(15.22)

0.265***

(19.78)

year2 0.026***

(3.63)

0.025***

(3.52)

2077.82***

(3.79)

2136.84***

(3.54)

-0.000153

(-0.23)

-0.000215

(-0.32)

year3 -0.021***

(-2.88)

-0.022***

(-2.99)

3602.11***

(6.52)

3443.90***

(5.67)

0.000286

(0.42)

0.000187

(0.27)

year4 -0.022***

(-3.05)

-0.023***

(-3.11)

5905.55***

(10.65)

5518.80***

(9.06)

-0.00122

(-1.75)

-0.00136*

(-1.94)

year5 0.024***

(3.19)

0.025***

(3.32)

8379.17***

(14.98)

7468.52***

(12.19)

-2.49e-3

***

(-3.44)

2.63e-3

***

(-3.65)

year6 0.058***

(7.27)

0.060***

(7.58)

1.20e4***

(21.20)

1.10 e4***

(17.92)

-3.37e-3

***

(-4.42)

3.55e-3

***

(-4.70)

year7 0.068***

(8.09)

0.070***

(8.47)

1.40e4***

(23.78)

1.30 e4***

(19.95)

-4.33e-3

***

(-5.37)

-4.57e-3

***

(-5.76)

year8 0.084***

(9.05)

0.086***

(9.69)

1.80e4***

(30.09)

1.60 e4***

(25.16)

-4.41e-3

***

(-5.00)

-4.68e-3

***

(-5.46)

year9 0.108***

(10.89)

0.112***

(11.98)

2.20e4***

(34.92)

2.00 e4***

(28.55)

-5.16e-3

***

(-5.44)

-5.36e-3

***

(-5.91)

year10 0.122***

(11.31)

0.127***

(12.7)

2.60e4***

(41.65)

2.33 e4***

(34.64)

-6.20e-3

***

(-6.05)

-6.40e-3

***

(-6.60)

Hausman

Test

Results

P=0.0000

Fixed Effects

P=0.0000

Fixed Effects

P=0.0000

Fixed Effects

Note: ***、**、* estimated coefficient significantly under 1%, 5% and 10% levels respectively,

z values or t value are shown in brackets.

Have the model (2) panel tested under the fixed effects and the random inspection, the results

are shown in table 1, column 1 and 2.

The panel estimation results show that under the fixed effects, foreign direct investment (FDI)

and environmental regulation (eyhlqcl) passed the test of significance of 1% at the same time,

coefficients are 0.514, 0.063; Under the random effects, foreign direct investment and

environmental regulation also distinguish also passed the test of significance of 5% and 1%,

coefficients are 0.274, 0.061, both symbolic are the same with fixed effect. Have Hausman

inspection, P-value shows fixed effects model is applicable. The above results show that under the

calculation results of fixed effects, foreign direct investment have positive effects on the

dependent variable, meaning that the increase of FDI will drive the growth of the dependent

variable, which reduce the efficiency of green development of the city, That is to say, the influence

of foreign direct investment on the green development efficiency is negative. On the contrary,

environmental regulation have reverse effect on the dependent variable, meaning that enhancing

environmental regulation level can reduce the value of dependent variable, which improves the

city's green development efficiency. That is to say, the influence of environmental regulation on

green development efficiency effect is positive.

As to control variables, the per capita GDP (PGDP) has passed by 1% significance test, and

the coefficient is negative, which means that the region's economic development level has positive

effect to the urban green development efficiency, It may be that the comprehensive economic

strength developed areas, people's environmental consciousness and subjective environmental

behavior is more common than ordinary areas, environmental protection has become an important

part of economic development. The industrial structure (cyjg) has passed by 10% significance test,

the coefficient is positive, which means that if the proportion of the second industry in the whole

industrial structure rises, it will have a negative effect on urban green development efficiency, this

result is accordingly with the understanding that the second industry development can bring too

much pollution emissions; Per capita investment in S&T (psci) has passed by 10% significance

test, and the coefficient is negative, which means that the growth of investment in science and

technology will play a positive role in promoting urban green development efficiency, because

increasing investment in science and technology is conducive to the emergence of technological

innovation and efficient solution of cleaner production, which is also beneficial in increasing the

economic efficiency and environment efficiency meanwhile.

4.2 Influence of FDI on urban economic growth

In consideration of the green development efficiency from the economic and environmental

aspects , the introduction of FDI did not play a more substantial role in promoting urban green

development, but environmental regulation has played a more significant support and promoted

the green development efficiency. Because the green development efficiency measures

performance of FDI from the economic and environmental aspects, so, we respectively use per

capita GDP and sulfur dioxide emission intensity as the dependent variable, discussing benefits of

FDI on economic and environmental.

When studying the effects of FDI on the city's economic growth, according to the practice of

the majority of our literature, we use urban per capita GDP (pgdp) as the dependent variable,

characterizing the level of economic development of the city. The fdi is critical variable, and per

fixed assets deflated、per capita investment in science and technology are control variables. The

affects of the former are economic growth in the form of capital stock, the latter is in the form of

changing the form of productivity. The year is dummy variable, recorded as 1 year, other years as

0. Regression model (3):

∑ (3)

Testing model (3) with panel fixed effects and random effects, the result of the fixed effects

regression is showed with 3 and 4 rows in Table 2.

Two panel estimation results show: under the fixed effects, foreign direct investment (FDI)

passed the 1% significance test, the coefficient negative; in the random effects , foreign direct

investment (FDI) also passed the test, the coefficient positive; but this model is applicable to fixed

effects by Hausman test, so this paper uses the result of fixed effects regression as the standard of

analysis.

From Table 2, the coefficient of FDI on per capita GDP is negative, meaning the introduction

of FDI has a negative externality for urban local economic level. The above results may be due to:

higher per capita GDP in the eastern coastal city in recent years, the share of FDI accounting for

its local economy has been relatively higher , the rate of FDI proportion tending slow . With

relatively lower in the western region labor costs, as well as Midwest cities positively attract FDI

investment, making the proportion of FDI in the Midwest increasing, and the city's per capita GDP

of the Midwest is relatively lower, so FDI has negative impact on per GDP. This shows, the lower

absorptive capacity of Midwest cites (eg human resources flow to the east, the market system is

incomplete, weak R&D infrastructure etc., making it unable to absorb the spillover effects of FDI

in a more effective way.

On the control variables, the per capita investment in science and technology (psci), per fixed

assets (repgdzc) have passed the 1% significance test, the former can bring innovation and

production efficiency and the improvement of production technology, the latter is necessary basis

for the social investment and capital expansion, so have a significant positive effect on the city's

economic development. Industry Structure (cyjg) failed to pass the test of significance, probably

due to the urban economic development power has gradually shifted from the second industry to

the third industry.

4.3 The impact of FDI on urban environmental pollution

On the basis of approach used by the majority of literatures, we take SO2 emission intensity

(reeyhlqd) as a dependent variable, the severity of pollution and FDI as independent variables, the

per capita GDP (pgdp), industrial structure (cyjg), and per capita technology investment (psci),

environmental regulation (eyhlqcl) as control variables, year as a dummy variable, the year is 1,

and the other years are 0 to study the relationship of FDI and urban environmental pollution.

Among them, the per capita GDP represent the level of regional economy, higher economic level

may achieve better environmental protection, but also may bring more serious pollution; greater

proportion of secondary industry in the industrial structure, greater possibility of contamination;

higher per capita technology investment is more likely to bring clean and efficient production

methods, which means the intensity of pollution would be inhibited. The environmental

regulations as the direct policy have a more direct impact on the pollution intensity. Establish

regression model (4):

∑

(4)

Model (4) is tested under the fixed effect and random effect, and the results are shown in

Table 2, fifth and sixth.

Two panel estimation results show that, under the fixed effects, FDI (foreign direct

investment) through the test of significance of 1%, and the coefficient is - 0.041; under the random

effect, equally through the test of significance of 1%, and the coefficient is -0.054. According to

the Hausman test results, the regression equation suits the fixed effect model. This result means

that there is a significant negative effect between FDI and urban environmental pollution intensity,

the more FDI the city is introduced, the more positive externality the environment have. The

conclusion of the inverse relationship between the FDI and the urban economic development is

presented, and the result of this regression is consistent with the hypothesis of ―pollution halo‖

proposed by the existing literature. The inflows of FDI can not only bring environmental clean

technology, but also introduce mature excellent green management system in the home country

(developed countries) during the process of overseas investment by multinational companies. Due

to the production technology and process in general is superior to the domestic situation, FDI of

environmental resources and the extent of the damage is relatively small compared with the same

domestic capital and investment(Bai Shengdeng, 2008; Wei Xianxue, Liu Jing, 2010) [11]

[12]

.

For control variables, eyhlqcl (environmental regulations), pgdp (per capita GDP), cyjg

(industry structure), psci (per capita scientific and technological input) all through the significant

test of 1%. Among them, the coefficient of eyhlqcl (environmental regulation) is less than 0, prove

that environmental regulation can inhibit the intensification of urban pollution; pgdp (GDP per

capita) is less than 0, which means the enhance of regional economic strength can significantly

reduce the pollution emission intensity, because the regional economy pay more attention on the

spread of environmental protection concept and the connotation type of development; cyjg

(industrial structure) is greater than 0, due to the pollution produced by the secondary industry is

main source of all pollution emissions, so greater proportion of secondary industry in industrial

structure, more pollution would be produced, and both show a significant positive correlation; the

coefficient of psci (per capita technology inputs) is greater than 0, this may because the

productivity of our country still rely on deepening degree of resources utilization, and pay more

attention to the efficiency in process rather than the improvement of the end of clean emissions.

Although science and technology investment and the use of resources have improved, the

pollution is simultaneously increased, resulting in positive effects.

To sum up, we can find: FDI and Chinese urban green development overall efficiency was

negatively correlated, causing the cause of this situation is the environmental benefits is positive

but economic benefits is negative, and negative effect is greater than the positive effect.

5. Concluding remarks:

This paper takes 280 prefecture-level cities of China as the research objects, respectively

considers the relationship between FDI and economic development, FDI and environmental

pollution of the cities in China. Based on the input SBM model, the paper also integrates economy

and environment into the green development efficiency, and uses empirical method to explore the

effect of FDI on the economic green development efficiency of a country. Here are the main

conclusions:

(1)FDI is negatively related to the urban green development efficiency. The reason leads to

this situation is that FDI is good for environment but bad for economy, namely the negative effect

between FDI and economy is greater than the positive influence between FDI and environment.

(2)FDI has negative effect on urban economy. This is mainly because the cities with low

level of development have low absorptive capacity, which makes it can‘t absorb the spillover

effect of FDI effectively.

(3)FDI has positive effect on urban environment. This is because the production technology

and technological process of multinational companies are generally superior to the domestic

actuality. With the economic growth during the period of inspection, the extent of the damages of

FDI to resources and environment is relatively small, compared with the same domestic capital

and investment.

According to the above conclusions, the following policy recommendations are given:

(1)Recede the negative effect of FDI on urban economy, the government should first

guarantee the ‗quality‘ then the ‗quantity‘ when introducing foreign capital. In the process of

gradually realizing the target of urban economic development, except to guarantee the quantity of

introduction of the foreign capital, the government should first pay more attention to the

promotion of the quality of foreign capital. Greatly introduction without the bottom line will

further strengthen the reverse effect on the economy. In addition to more strict and standardized

operation to the approval flow of the resource-polluted projects, there is more need to actively

look for high quality projects which pay equal attention to urban economy and environment. The

government should establish corresponding preferential policies, and encourage the entry of such

foreign investment projects. So that, the quality of foreign capital can gradually be improved on

the whole, and the negative impact already generated on the urban economy can also be

weakened.

(2)Strengthen the positive effect of FDI on urban environment, continue to attract foreign

capital, and strengthen the construction of the economic environment which can achieve

technology spillover effect. Under the existing enterprise production condition in our country, the

intangible assets which have spillover effects, such as the technical concept of FDI, haven‘t get

effective transmission. In the process of introducing the foreign capital, the governmental need to

control the investment projects which benefit both economy and environment, and should be more

active to create economic environment that is suitable for the survival of foreign enterprises and is

helpful to the technological knowledge diffusion. Thus improve the existing extensive enterprise

production situation in domestic, strengthen and accelerate the realization of its spillover effect,

and further enlarge the positive environmental externalities of FDI.

(3)In the process of promoting the urban green development efficiency, the government can

also strengthen environmental regulation through raising the tax rate of pollution and introducing

all kinds of environmental protection laws and regulations. The government can further adjust the

industrial structure of the city, encourage the introduction of multi degree talents, achieve the

transformation and upgrading of the secondary industry to the tertiary industry, and control the

pollution sources from the industry sources. The government should moderately increase the input

of science and technology in the fiscal expenditure, and encourage the input of science and

technology besides flow to the process of ascension to ensure the efficiency of the production

process, in addition to strengthen the development of means to clean and governance the end, and

formulate incentive system to the relevant terminal clean technology innovation etc. So to enhance

the positive environmental externalities of FDI, weaken the negative economic externalities, and

finally realize the promotion of the green development efficiency.

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