The Spatial Correlation between Foreign Direct Investment and Air Quality in China and the Potential Channel

Due to the attention given to air pollution, the impact of foreign direct investment (FDI) on air quality has led to many discussions on this topic; however, there is a lack of literature discussing the correlation between FDI and air quality from a spatial perspective. In China, the discontinuity of ground monitoring data further limits research in this area. Using a new air pollution dataset, this paper constructs a dynamic panel of 259 prefecture-level Chinese cities over the period 2013-2018 and reveals that FDI on average induces the pollution halo effect in host cities but shows direct correlation with air pollution in the outer conurbation areas. Further examination supports the main findings by showing that FDI presents the same correlation with coal consumption and thermal power generation of the local and the outer conurbation areas. The heterogeneity analysis finds that the industrialization stage, ecological construction, and technology development are important moderators for FDI's pollution effect. The findings of this paper generate potential policy implications for regional green development regarding FDI.