The impact of foreign direct investment on urban PM_2.5 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 PM_2.5 pollution. The results demonstrate that urban PM_2.5 pollution shows both significant global spatial autocorrelation and local spatial agglomeration effects. Overall, FDI significantly aggravates China's urban PM_2.5 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 PM_2.5 pollution in the initial stage of industrialization, it does aggravate urban PM_2.5 pollution in the midterm stage. In the later period of industrialization, FDI actually improves urban PM_2.5 pollution, but the effect of this improvement is relatively weak. Furthermore, PM_2.5 pollution shows significant spatial spillover and dynamic effects. It follows that both joint prevention and control and continuous efforts must be made to control PM_2.5 pollution.