Dynamic Mechanisms of the Environmental Effects of FDI: An Empirical Test Based on the PVAR Model

Abstract

This study selected relevant data of China from 2006 to 2019 and adopted a panel vector autoregression (PVAR) model to conduct an empirical analysis on the dynamic mechanism of a series of problems including “FDI (foreign direct investment), economic scale, and environmental pollution,” “FDI, industrial structure, and environmental pollution,” and “FDI, production technology, and environmental pollution.” Our research results showed that there are differences in the optimal lag order under different conditions, such as under the action mechanism of economic scale and industrial structure, and the optimal lag order was 1, while under the action mechanism of production technology, its value was 2. FDI had a long-term effect on the environment; under the dual-action mechanism of economic scale and industrial structure, the environmental effect of FDI reached the maximum within 2 periods, the effect lasted a relatively long time, and the response of environmental pollution to the technological level reached the maximum between the fourth period and the sixth period. In terms of the overall situation in China, the FDI did not produce an obvious effect on environmental pollution; on the contrary, it exhibited a trend of environmental improvement, which varied with the action mechanism and the region; and also, the improvement of technological level can also significantly improve the quality of environment.