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Carbon emissions regulations and FDI inflow: moderating effects of bank credit availability and fiscal capacity for China's prefecture-level cities

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Abstract

This study investigates the effect of carbon emissions regulations on FDI inflow and the moderating effects of bank credit availability and fiscal capacity. According to the “pollution haven” hypothesis (PHH), foreign direct investment (FDI) tends to move to countries/regions with less stringent environmental regulations. Consistent with the PHH, this study finds that stringency of carbon emissions regulations is negatively associated with FDI inflow for Chinese prefectural-level cities during 2004–2018. This study also finds that bank credit availability and local government fiscal capacity mitigate the negative association between carbon emissions regulations and FDI. The results suggest that Chinese cities with low bank credit availability are more likely to relax carbon emissions regulations to attract FDI. Moreover, Chinese cities with high fiscal capacity can use their fiscal expenditures to minimize the negative effect of strict carbon emissions regulations on FDI. The findings imply that China's central government can help the cities achieve sustainable development by facilitating bank financing and providing fiscal support.

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Data availability

The datasets generated during and/or analyzed during the current study are available from the corresponding author on reasonable request.

Notes

  1. Xinhua News Agency. Xi Jinping's speech at the UN biodiversity summit [EB/OL]. http://www.xinhuanet.com/politics/leaders/2020-09/30/c_1126565287.htm, 2020-09-30.

  2. Economic Daily. China bucks the trend to become the world's largest foreign capital inflow [EB/OL]. http://www.sasac.gov.cn/n2588025/n2588139/c16625618/content.html, 2021-02-04.

  3. Software of DEAP2.0 is used to calculate the DEA-based Malmquist productivity index for the Chinese cities. The inputs of labor and capital are measured by number of employments and amount of fixed assets (net) in 2003 constant yuan, respectively. The outputs are measured by actual GDP level in 2003 constant yuan.

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Funding

The authors of this study received financial support from the National Natural Science Foundation of China (Grant Nos. 72064014, 71763011).

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Authors and Affiliations

  1. Institute of Economic and Social Development, Jiangxi University of Finance and Economics, Nanchang, Jiangxi, China

    Yanyun Chen & Xingxing Wen

  2. College of Business, Central Washington University-Lynnwood, 20000 68th Avenue W, Lynnwood, WA, 98036, USA

    Ke Zhong

Authors
  1. Yanyun Chen
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  2. Xingxing Wen
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  3. Ke Zhong
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Contributions

YC is a professor in the Institute of Economic and Social Development at Jiangxi University of Finance and Economics, China. His research interests include industrial economics, environmental economics, and carbon neutrality. XW is a master’s student in the Institute of Economic and Social Development at Jiangxi University of Finance and Economics, China. His research interests include regional economics, environmental economics, and carbon neutrality. KZ is a professor of Accounting in College of Business at Central Washington University. Her research interests include capital markets, earnings management, government regulations, and environmental economics.

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Correspondence to Ke Zhong.

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Chen, Y., Wen, X. & Zhong, K. Carbon emissions regulations and FDI inflow: moderating effects of bank credit availability and fiscal capacity for China's prefecture-level cities. Environ Dev Sustain 26, 9025–9044 (2024). https://doi.org/10.1007/s10668-023-03080-9

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