Does diversified environmental regulation make FDI cleaner and more beneficial to China’s green growth?

Abstract

With the internationalization and financial development, it is urgent to explore the effect of foreign direct investment on green economy under the context of multiple environmental regulations. By using the provincial panel data in the period of 2000–2016, the paper adopts the System Generalized Method of Moments and threshold models to detect the moderating effect of diversified environmental regulation on the nexus between foreign direct investment and green growth in China. The empirical results reveal that foreign direct investment has direct positive spillovers on China’s green growth and supports the “pollution halo” hypothesis. There is a threshold effect of command-and-control regulation that exists in foreign direct investment’s spillovers to green growth. Stricter command-and-control regulation can stimulate foreign direct investment’s spillovers on green growth in China; however, market-based and informal regulations fail to. Some suggestions are proposed for constructing a matched and compatible policy system of foreign direct investment, environment protection, and economic growth by adjusting the intensity, tools, and enforcement of corresponding policies.