Environmental regulation and inward foreign direct investment: Evidence from the eleventh Five‐Year Plan in China
利用中国2006年第十一个五年计划中空气污染物减排目标政策，通过三重差分法发现更严格的环境规制会减少外商直接投资，主要通过提高外资企业退出概率和降低进入概率实现，且低生产率外资企业反应更强烈。
Abstract This paper investigates whether environmental regulations affect inward foreign direct investment (FDI). The identification strategy uses the reduction target policy for air pollutants during eleventh Five‐Year Plan period implemented by the Chinese government in 2006. Our difference‐in‐difference‐in‐differences estimation employs three‐dimension of variations; prefecture (i.e., high target prefectures vs. low target prefectures), industry (more polluting industries relative to less polluting ones), and year (i.e., before and after 2005). We find that tougher environmental regulations lead to less inward FDI through increasing the probability of exit and reducing the probability of entry of foreign invested enterprises. Mechanism analysis shows that foreign invested enterprises with relatively low productivity demonstrate strong negative response. This allocation of resource improves industry productivity.