The impact of foreign direct investment on urban PM2.5 pollution in China

The hypothesis of Pollution Heaven or Pollution Halo has, for some time, been one of the central issues in environmental economics. There is a controversy in the conclusions with regards to China, it thus needs further empirical testing. Based on 2003 to 2016 statistical data on 285 Chinese cities, this paper uses a dynamic spatial panel model to empirically analyze the impact of foreign direct investment (FDI) on PM2.5 pollution. The results demonstrate that urban PM2.5 pollution shows both significant global spatial autocorrelation and local spatial agglomeration effects. Overall, FDI significantly aggravates China's urban PM2.5 pollution, thus confirming the Pollution Heaven hypothesis. This effect, however, depends on the stage of urban economic development. Although FDI has no significant effect on urban PM2.5 pollution in the initial stage of industrialization, it does aggravate urban PM2.5 pollution in the midterm stage. In the later period of industrialization, FDI actually improves urban PM2.5 pollution, but the effect of this improvement is relatively weak. Furthermore, PM2.5 pollution shows significant spatial spillover and dynamic effects. It follows that both joint prevention and control and continuous efforts must be made to control PM2.5 pollution.