Unveiling the Green Trail: FDI, Global Value Chains, and Firm Pollution in China – Finn Ole Semrau

Speaker

Finn Ole Semrau (Kiel Institut)

Abstract

In the 2000s, China's unique integration into global value chains (GVCs) fuelled rapid growth, making it a popular destination for foreign investment. However, this also turned the country into the world's biggest polluter. In this study, we analyse the relationship between foreign ownership and GVC position and firms' abatement of Chemical Oxygen Demand (COD) and ammonia (NH3), respectively. In so doing, we contribute to the ongoing debate on FDI and firms' environmental performance by taking a GVC-angle on the nexus. Using firm-level data from the Chinese Industrial Enterprise Dataset (CIED), the Chinese Enterprise Pollution Dataset (CEPD) and the Chinese Customs Dataset (CCD), we find that foreign-owned firms show higher pollution abatement than their domestic counterparts. However, foreign-firms demonstrate lower abatement efforts in upstream positions. Our analysis of the mechanism reveals that the upstreamness bias in foreign-owned firms' pollution abatement efforts can be explained by lower productivity of foreign firms in these stages. This pattern suggests that firms do not realise the full potential benefits of foreign ownership in upstream positions. Finally, we find that stronger foreign stakeholder pressure mitigates this bias for COD, but not for NH3. Our findings point to the need for targeted upstream interventions to fully unfold FDI's potential on reducing environmental degradation. 

Authors

Holger Görg (Kiel Institut; Kiel University (CAU)) – Lars Hecker (Kiel Institut) – Finn Ole Semrau (Kiel Institut) — Zheng Wang (School of Business, University of Dundee; GEP, University of Nottingham, United Kingdom)

Room

Media Room (A-211)