This study examines the causal impact of intra-industry Foreign Direct Investment (FDI) spillovers on the environmental performance of Chinese industrial firms during 1998–2008. Combining firm-level data from the Annual Survey of Industrial Firms (ASIF), annual emission and energy reports, and policy changes in FDI regulations, we construct an instrumental variable (IV) based on the 2002 reform. The results show that a one-unit increase in intra-industry FDI intensity reduces SO₂ emission intensity by about 5%. The effect is stronger for exporters, large-scale firms, new entrants, and firms in key control zones, and remains robust to multiple specifications. Mechanism analysis suggests that the reduction in emission intensity is achieved mainly through technology adoption, productivity improvements, and easing of financial constraints, while patent-based innovation plays only a limited role. However, absolute SO₂ emissions do not decline significantly due to output expansion, pointing to a scale–intensity trade-off. The findings provide nuanced evidence on the environmental effects of FDI: while intra-industry FDI can generate pollution-reducing spillovers, its aggregate benefits depend on complementary domestic policies. Future research should extend to other pollutants and more recent periods to assess the evolving role of FDI in promoting sustainable industrial development.
Kang et al. (Thu,) studied this question.