Should China prefer more foreign direct investment inflows to environmental change?

This study aims to investigate the impact of foreign direct investment (FDI) on environmental quality in China over the period 1984-2014. Specifically, the research focuses on the possibility of the effects of FDI on the quality of the environment in China. We employ the bound test approach and found a significant cointegration among environmental quality and other variables, the autoregressive distributed lag model (ARDL) model used after finding a cointegration connection between environmental quality and other independent variables to explore the short and long-run relationships among the variables. The coefficient of the long-run (ARDL) model indicates that the impact of FDI on the quality of the environment is positive, and it implies that better FDI inflows in China, resulting in higher energy consumption and thus leading in the direction of higher release of CO(2)emission. Moreover, in the short run the coefficient obtained by the error correction mechanism shows that FDI does not improve the environmental quality, and it leads to more environmental degradation in China. The causality approach specifies that FDI and environmental quality have a unidirectional relationship. Therefore, the finding suggests that China should foray balance between FDI inflows and environmental quality, and encourage more FDI inflows, particularly in technology-intensive and environment-friendly industries, to improve environmental quality.