Environmental pollution of China to foreign investors: detrimental or beneficial?

This study investigates the dynamic linkage among foreign direct investment, energy consumption, and environmental pollution of China spanning from 1990 to 2014. Despite the extant literature on the FDI-energy-growth-environmental pollution nexus, most of the conclusion seems inconsistent. Hence, this study utilized recent econometric techniques such as the dynamic ordinary least square (DOLS), autoregressive distributed lag (ARDL) bounds test approach, Gregory and Hansen structural cointegration, and the bootstrap Granger causality. The study also disaggregated energy consumption into various sources to identify their respective distinct impact on the environment. Our study confirmed the presence of the EKC curve for China in a quadratic equation applying the DOLS. The result of the bootstrapped Granger causality confirmed the presence of a unidirectional Granger causality running from CO2 emission to economic growth and export; non-renewable energy to economic growth, export to economic growth, and renewable energy; and urbanization to economic growth. Moreover, our study recognized the presence of a bi-directional connection between FDI and economic growth. Our study highly recommends that China modify its energy mix by incorporating more renewable energy resources such as hydro, wind, geothermal. Additionally, the regulatory bodies should strictly implement improved energy efficiency in the various sectors that complement total proper urban land usage as the urban population to total population significantly impelled an upsurge in environmental deterioration in China.