Why FDI helps China’s environment but exports do not

DENG Bosheng1 (邓柏盛) and SONG Deyong2 (宋德勇)
1Ph.D. in Economics, School of Business, Hunan University of Commerce
2Professor and Doctoral Advisor, School of Economics, Huazhong University of Science and Technology

Editorial Note:Since reform and opening to the outside world, China has made enormous expansions in foreign trade and foreign direct investment (FDI) and generated remarkable economic benefits. Meanwhile, the country has suffered from environmental deterioration in many places nationwide. How do foreign trade and FDI relate to environmental quality? What influence, good or bad, do trade and FDI exert on the environment and environmental policy? This empirical analysis presents conclusions on this subject and offers policy proposals.

I.Introduction
The environmental impact of trade and FDI remains a contentious issue around the world. One view holds that trade and FDI provide the motivation and opportunity for developing countries to use new technology and achieve clean and green production, thereby improving global environmental quality and regional sustainable development capability (Siebert, 1977; Birdsall & Wheeler, 1993; Porter, 2002; and Frankel, 2003). Another viewpoint contends that the environmental consequences from trade and FDI are negative for developing countries, both in the short and long term (Leger, 1995; Brander & Taylor, 1997; and Benarroch & Thille, 2001).