China sychengli@163.com Abstract—Taking Liaoning province as an example, this paper discussed the relationship between foreign direct investment FDI and environment through the granger
Trang 1Analysis of Relationship between FDI and Environment in Liaoning Province
Li Cheng School of Economics and Management Shenyang Aerospace University Shenyang, P R China sychengli@163.com
Abstract—Taking Liaoning province as an example, this paper
discussed the relationship between foreign direct investment
(FDI) and environment through the granger causality test and
relationship test The results showed that FDI in Liaoning
province increased from 248 million dollars in 1990 to 15.444
billion dollars in 2009 with an average growth rate of 22.95%
The actual FDI mainly focused on the second industry,
especially in manufacturing, with an average proportion of
50% FDI exerted an important influence on industrial
emissions If FDI increased by 1%, industrial waste gas
emissions would increased by 0.82% Finally, the government
should promote coordinated development between FDI and
environment by optimizing foreign investment environment,
adjusting the industrial investment structure and improving
foreign environmental laws and regulations and strengthening
environmental law enforcement in Liaoning province
Keywords-FDI; enviroment effect; Liaoning province;
causality test
I INTRODUCTION
With the advancement of global economic integration
process, flow in such as capital, raw materials and labor from
country to country is more and more frequent, and the trade
and investment activities between countries or areas are more
frequently In 2009, China's GDP reached 34.34647 trillion
yuan, with annual import and export of goods of $2.20754
trillion and FDI of $94.065 billion, and China has become
the first of the developing countries in attracting foreign
capital But, along with the growing awareness of
environmental protection, foreign direct investment and
environmental pollution problems are becoming more and
more concerned from society So far, there are mainly three
kinds of views on relationship between FDI and environment
pollution by foreign scholars’ research: First, foreign direct
investment in the host country's environmental impact is
favorable Birdsall and Wheeler believed foreign trade and
FDI in developing countries provide motive and opportunity
to adopt new technology, thereby improving the quality of
the host country environment [1] Eskeland and Harrison
found that foreign companies’ emissions are less than
domestic enterprises [2] Second, FDI's impact on the
environment is unfavorable It includes two kinds of views
One is the “pollution haven” hypothesis It states the
pollution industries transfer to developing countries with less
environment regulation which become “pollution haven” and
that FDI will increase the host country's environment
pollution The other is that FDI promotes economic
expansion of the host country, which accelerates speed of
natural resources consumption and environmental degradation, leading to more industrial pollution and environmental degradation Third, environmental effect of FDI could decompose Comprehensive environmental effect depends on the combined effect of all kinds Grossman and Krueger are the first to let the environment effect decompose into scale effect, structure effect and technology effect [3] Panayotou added into four effects, include structure effect, scale effect, technology effect and the control effect [4] With the expanding of openness in China, some domestic scholars also begin to pay close attention to environmental problems brought by foreign direct investment Wenbing Sha measured the environmental effect of foreign direct investment (FDI) with panel data of China's 30 provinces (cities, districts) from 1999 to 2004 Results showed that foreign direct investment had significant negative effects on our country's ecological environment [5] Shenbiao Pan and Miaozhi Yu used the test analysis on the relationship between foreign direct investment and environmental pollution in Jiangsu, Zhejiang and Shanghai [6] Ruiyao Ying and Li Zhou showed foreign direct investment in China
is the Granger cause of industrial pollution based on the empirical analysis of the “pollution haven” [7] Jie He used the panel data of 29 provinces and cities in China, taking sulfur dioxide as index of pollution of the environment found that 1 unit increase of the absorption of FDI, can lead to 0.098 units increase of industrial SO2 emissions [8]
In Chinese academic circle, the research about the environmental problems brought by foreign direct investment (FDI) mainly focuses on the entire country from
a macro point of view, and the southeast coastal developed area The environmental problems brought by the foreign direct investment in northeast China are paid less attention However, with the propulsion of northeast old industrial base revitalization strategy and under the control of industrial gradient shift rules, there have been more and more foreign enterprises, especially the pollution intensive enterprises, entering the region in northeast China On one hand, the foreign capital promoted the economic development of China's northeast, but on the other hand, can also bring the pollution of the environment Liaoning, as China's important energy and raw materials base, is confronted with the worsening environmental problems Therefore, it is more theoretical and practical significant to study the related problems of FDI and environmental pollution in Liaoning province
2013 6th International Conference on Information Management, Innovation Management and Industrial Engineering
Trang 2II EMPIRICAL ANALYSIS OF THE RELATIONSHIP
BETWEEN FDI AND ENVIRONMENT IN LIAONING PROVINCE
In recent years, the number of actual use of foreign
capital in Liaoning province is on a rising trend year by year
It can be seen from Tab 1 that the actual foreign direct
investment mainly concentrated in the second industry,
especially in manufacturing industry with the proportion of
about 50% on average from 2000 to 2009 In recent years,
the share of foreign direct investment in the third industry
appeared rising trend year by year accounting for half with
the second industry By the end of 2009, the province's
actual utilized foreign direct investment reached $15.444
billion with a 28.49% increase from the previous year
Actual use of foreign direct investment of manufacturing
was $6.959 billion, increased by 32.36%
TABLE I D ISTRIBUTION OF FOREIGN DIRECT INVESTMENT
year Primary
industry
Secondary industry
Tertiary industry
Manufacturing industry
real estate
Data source: Liaoning province statistical yearbook, 2009,
A Causality Test of FDI and Environment Pollution in
Liaoning Province
Foreign direct investment mainly concentrates in the
second industry in Liaoning province, especially in
manufacturing industry Therefore, we use the industrial
“three wastes” emissions to measure pollution Industrial
wastewater emissions first decrease, then increase and finally
decrease, so its data is not representative The solid waste
emissions data violated greatly To simply, we selected
industrial waste gas emissions as a representative of the
degree of pollution This is due to the characteristics of the
exhaust gas with difficult governance and large diffusion
area after discharge is It is more representative index to
represent pollution characteristics by other scholars In order
to study the relationship with FDI and industrial waste gas
emissions in Liaoning province, this essay first carried on
causality test between them
Before the Granger causality test method, the analysis of
the relationship between economic phenomena are limited to
qualitative analysis, which are difficult to reveal causal
relationships between the various economic phenomena
Therefore, Granger and Sims proposed the way to test causal
relationship between all kinds of economic phenomena using the statistical method, i.e “Granger causality test” [9][10] The idea of Granger causality test is: for the two economic variables X and Y , the forecast effect is better than by
single past information of Y under the condition of
containing the past information aboutX and Y at the same
time, which means variable X improves the prediction
precision of Y, so it can be concluded that X is the Granger
cause of Y ’s change Specific testing method is: test
0 ) , , 2 , 1
i
E in (1), this assumption is equivalent
to “X is not the cause ofY’s change” If the testing results
reject the null hypothesis ofEi( i 1 , 2 , , m ) 0 , we can reject the hypothesis "X is not the cause ofY’s change",
and come to the conclusion that X is the Granger cause of
0 ) , , 2 , 1
j
Granger causality
t m
i i i m
i i
y D ¦D ¦E H
1 1
0
˄1˅
t m
j j t j m
j
j t
y D ¦D ¦E H
1 1
0
˄2˅
This essay applied Eviews 5 statistical software to carry
on Granger test the relationship between the FDI and industrial waste gas in Liaoning province, with taking 10%
as significance level and taking from 1 to 2 as lag period We can get results from Tab 2 Combined with F test and P values, it can be seen from Tab 2, when lag period is from 1
to 2, foreign direct investment in Liaoning province has significant effects on industrial waste gas emissions FDI is the Granger cause of industrial waste gas While industrial waste gas has no significant effect on foreign direct investment, and industrial waste gas is not the granger cause
of foreign direct investment Among them, WG is the
representative of industrial waste gas emissions (unit: hundred million cubic meters) FDI is the actual foreign
direct investment (unit: hundred million US dollars)
TABLE II G RANGER CAUSALITY TEST RESULTS
the null hypothesis lag
period F statistics P value Decision
LNWG does not Granger Cause LNFDI 1 1.05614 0.34373 Accept LNFDI does not Granger
LNWG does not Granger Cause LNFDI 2 5.54078 0.19833 Accept LNFDI does not Granger
Trang 3B The Correlation Test between FDI and Environment
Pollution in Liaoning Province
As the time series data is easy to be auto-correlative, in
order to eliminate autocorrelation phenomenon of error term,
this essay took logarithm form of variables and use (3) to test
whether there is correlativity between FDI and industrial
waste gas
P D
D ln( ) )
˄3˅
The test results of the relationship between FDI and
Industrial waste gas are as follows:
) ln(
82 0 28 1 )
From Tab 3, the relationship between foreign direct
investments and industrial waste gas in Liaoning province
was positive correlation, which means industrial exhaust gas
increases as FDI, diminishes as FDI Every 1% increase of
FDI in Liaoning province will go with 0.82% increase of
industrial waste gas
TABLE III C ORRELATION TEST RESULTS OF FDI AND INDUSTRIAL
WASTE GAS
Variable Coefficient Std Error t-Statistic Prob
C -1.281913 3.995683 -0.320825 0.0756
LNFDI 0.821442 0.301352 2.725853 0.0260
R-squared 0.781539 Mean dependent var 9.600000
Adjusted R-squared 0.716731 S.D dependent var 0.699206
S.E of regression 0.133998 Akaike info criterion 1.760007
Sum squared resid 0.281230 Schwarz criterion 1.820524
Log likelihood -6.800033 F-statistic 7.430275
Durbin-Watson stat 1.874779 Prob(F-statistic) 0.002601
III ENVIRONMENTAL EFFECTS OF FOREIGN DIRECT
INVESTMENT IN LIAONING PROVINCE
Foreign direct investment not only promotes the global
spread of capital and technology, but also contributes to the
transfer of the environment pollution and resources pressure,
whose impact on the environment is associated with the
environmental characteristics of capital and technology
A Technology Spillover Effect of FDI
Technology spillover effect is refers to the impact on the
environment of FDI's technology diffusion Taking the ratio
of industrial emissions in industrial added value as
characteristics of industrial pollution intensity, Fig 1 shows
the change of industrial pollution intensity in Liaoning
province from 2000 to 2009 It can be seen that, as the
characterization of industrial pollution intensity, each index
has fallen significantly To some extent, this shows that the
development of technology and the application of
environmentally friendly technology have greatly decreased
the intensity of industrial pollution emissions from all
industries The overall decline in pollution emission intensity
reduces the industry pollution emission levels Thus, it’s an
effective way to reduce pollution emissions to improve the
technical level of FDI in Liaoning province
0 50 100 150 200 250 300 350 400 450
industrial waste water/industrial added value industrial gas/industrial added value industrial solid waste/industrial added value
Figure 1 Industrial pollution intensity changes in Liaoning province
B Structure Effect of FDI
In terms of the structure of industry, foreign direct investment in Liaoning has been focused on investment of
“production”, and about 60% of the introductions of foreign capital belong to industrial manufacturing No doubt that such a capital structure of Liaoning province shows a tendency of more damage to the environment capacity The increase in the FDI stock caused the structure of pollution aggravated pollution emissions This is related to the investment mode of “Out at Both Ends, Huge in and out” by which China has been taken China imports raw materials, (iron ore, oil, etc.) and exports finished products after processing (chemical, electronic products, chemical products, etc.) Most polluted production process are carried out in China Meanwhile, China only earn a little thinning processing fees which is a drop in the bucket compared with pollution control cost [11] But it can be seen from Tab.1 that since 2006 the industrial manufacturing share of FDI in Liaoning province investment have declined largely, and it greatly reduced the pollution emissions of the entire industrial, showing that FDI industry in Liaoning province is transformed to the clean industrial structure
C Enviromental Regulation Effect of FDI
The government has increased the strength of environmental regulations in recent years, which prevent the pollution intensive foreign capital from entering, and reinforce control degree of the total pollutant amount Fig 2 showed that indicators representing the degree of environmental pollution such as industrial waste water, industrial waste gas and industrial solid waste turned out the stable even declining tendency However, looser environment regulation is after all the cause of the entry of the foreign capital especially foreign capital with pollution intensive As China has different degree of regional environmental regulation, this caused the interregional transfer of industrial pollution in China to a certain extent From 1999 to 2006, China's industrial added values migrated
to the east by 3% Instead, the industrial pollution obviously concentrated in the Midwest In addition to industrial waste water, main pollutants have migrated from the east to the center and west [12]
Trang 4400000
800000
1200000
1600000
2000000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009year
FDI indust rial waste wat er industrial wast e gas industrial solid wast e
Figure 2 Industrial “three wastes” emissions in Liaoning province
D Scale Effect of FDI
The actual use scale of FDI in Liaoning province
increased from $ 248 million in 1990 to $15.444 billion in
2009 with the average annual growth rate as high as 22.95%
Many scholar's research shows that China is still in the left of
environmental Kuznets curve, and the expansion of the scale
of FDI will only add to environmental pollution Its positive
environmental effect has not yet appeared China's current
polluted degree of GDP per capita is more serious than the
same period abroad Severe environment pollution during the
period of GDP per capita between 400 and 1000 dollars in
China reached that during the period of per capita GDP
between 4000 and 10000 in the developed countries [13] It
means the pollution from each unit of GDP is far greater than
of the same national income in other countries
IV CONCLUSIONS AND POLICY RECOMMENDATIONS
Taking Liaoning province as an example, this paper
discussed the relationship between foreign direct investment
and the environment, and analyzed the environmental effects
of foreign direct investment We got the following
conclusions as follows:
1 Foreign direct investment of Liaoning province
increased from $ 248 million in 1990 to $15.444 billion in
2009 with the average annual growth rate as high as 22.95%
Actual foreign direct investment mainly concentrated in the
second industry, especially in manufacturing industry with
the proportion of about 50% on average
2 Taking the industrial waste gas emissions as the
characteristic of environmental pollution degree, Granger
causality tests showed that foreign direct investment in
Liaoning province had significant effects on industrial waste
gas emissions FDI is the Granger cause of industrial waste
gas Every 1% increase of FDI goes with 0.82% increase of
industrial waste gas emissions
3 Environmental effects of foreign direct investment in
Liaoning province include the technology spillover effect,
structure effect, regulation effect and scale effect Economic
expansion and economic structure of heavy pollution
aggravated pollution emissions induced by the increase of
the stock of FDI in Liaoning province Different degrees of
regional environmental regulation in China caused the
interregional transfer of industrial pollution to a certain
extent
Therefore, first, the government should create a standard transparent policies and legal environment, strengthen the supervision mechanism, and build a unified and open market environment with fair competition for foreign investment enterprises What’s more, as to the introduction of foreign direct investment projects that are resource saved and environment friendly, local governments should give the certain preferential policies, such as tax credits, etc Secondly, the government should adopt tilted industrial policies to encourage foreign direct investment to transfer from the second industry to tertiary industry, especially to the third industry, service and financial, and change the deformity industrial structure Last but not the least, China should play the role of government functional departments, further improve environmental standards and environmental policies, and establish appreciable and assessable environment index system
REFERENCES [1] Birdsall, and Wheller, “Trade policy and pollution in Latin American: where are the pollution haven?” Journal of Environment and Development, pp 137-145, Feburary 1993
[2] Eskeland,G S, and Harrison,A.E., “Moving to greener pasture? multinationals and the pollution heaven hypothesis,” National Bureau
of Economic Research, pp 8 888, April 2002 [3] Grossman C 㸪 and Krueger A., “Economic growth and the environment,” Quarterly Journal of Economics㸪vol 110, pp
353-430, 1995 [4] Panayotou T, “Demystifying the environmental Kuznets curve: turning a black box into a policy tool,” Environment and Development Economics, vol 2, pp 465- 484,1997
[5] Wenbin Sha, and Tao Shi, “Environment effect of FDI based on the empirical analysis of Chinese provincial panel data,” World Economic Research, pp.76-81, June 2006
[6] Shenbiao Pan, and Miaozhi Yu, “Granger causality test of FDI and environmental pollution in Jiangsu, Zhejiang and Shanghai,” International Trade Issues, pp 74-79, December 2005
[7] Ruiyao Ying, and Li Zhou, “FDI, industrial pollution and environmental regulation based on econometric analysis of Chinese data,” Finance and Trade Economics, pp 76-81, January 2006 [8] Jie He, “Pollution haven hypothesis and environmental impacts of foreign direct investment: the case of industrial emission of sulfur dioxide (S0 2 ) in Chinese provinces,” Ecological Economics, pp
12-18, January 2006 [9] Granger, C.W.J, “Investigating causal relations by econometric models cross spectral methods,” Econometrica㸪vol 37, pp 424- 438,
1969 [10] Sims, C.A, “Macroeconomics and reality,” Econometrica, vol 48, pp 1-48, 1972
[11] Yanwen Zhang, “The negative environmental effects and resolution
of foreign direct investment,” Search, pp 44-46, July 2006
[12] Yanbo Zhang, and Yajun Guo, “Environmental effects of FDI and environmental protection policy of the introduction of foreign investment in China,” Population, Resources and Environment, vol.19, pp 7-12, April 2009
[13] Deqiang Zhang, and Jingrong Tan, “Analysis of the impact of FDI on China's environmental Kuznets curve and the optimization approach,” International Trade Issues, pp 103-108, March 2006