ORIGINAL RESEARCH article
Front. Environ. Sci.
Sec. Environmental Economics and Management
Volume 13 - 2025 | doi: 10.3389/fenvs.2025.1554728
Weakly Binding Carbon Policy, FDI Evolution, and the Pollution Haven Hypothesis: A Difference-in-Differences Analysis of China's Low-Carbon Pilot Cities
Provisionally accepted
- School of Economics and Management, Taiyuan University of Technology, Taiyuan, China
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This study investigates the impact of China's Low-Carbon City Pilot (LCCP) policy, characterized by its flexible and "weakly binding" nature, on Foreign Direct Investment (FDI) patterns. We specifically focus on the heterogeneous effects of this flexible environmental regulation over time and its micro-level mechanisms. Employing a quasi-natural experiment framework and a Differencein-Differences (DID) methodology, we analyze city-level panel data and micro-level enterprise registration data from 2007-2019. Findings reveal significant temporal heterogeneity: the first LCCP batch (initiated in 2010) suppressed FDI, while the third batch (2017) promoted it. Mechanistically, the initial batch deterred the entry of both polluting and high-tech foreign firms, whereas the later batch encouraged investment expansion by existing foreign-invested enterprises. Furthermore, the policy's effects are influenced by FDI saturation, resource endowment, and the rigor of policy implementation. Contrary to the Pollution Haven Hypothesis, no significant regional pollution transfer effect was observed; instead, the third batch stimulated positive FDI spillovers in nearby regions (150-200km). These results provide empirical evidence on how flexible environmental policies shape FDI, offering insights for balancing economic growth and sustainability.
Keywords: low-carbon city pilot policy, Foreign direct investment, heterogeneity, DID model, Pollution haven hypothesis
Received: 02 Jan 2025; Accepted: 03 Jun 2025.
Copyright: © 2025 Zhang. This is an open-access article distributed under the terms of the Creative Commons Attribution License (CC BY). The use, distribution or reproduction in other forums is permitted, provided the original author(s) or licensor are credited and that the original publication in this journal is cited, in accordance with accepted academic practice. No use, distribution or reproduction is permitted which does not comply with these terms.
* Correspondence: Chengyue Zhang, School of Economics and Management, Taiyuan University of Technology, Taiyuan, China
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