The Impacts of foreign direct investment and domestic investment on environmental quality in Jiangsu Province, China

Abstract

Under the background of economic globalization, trade between countries has become increasingly frequent, and capital has also transcended the limitations of national boundaries, flowing towards countries or regions with higher returns. Jiangsu province, as one of the most developed provinces in China, attracts investment from all over the world. The continuous improvement of economic strength and the increase in Foreign Direct Investment in Jiangsu province will inevitably impact the local environmental quality. The coordinated development of the environment and the economy remains one of the key issues for Jiangsu's development. Therefore, it is necessary to focus on the relationship between FDI, domestic investment (DI), and environmental quality in Jiangsu province. Therefore, my thesis utilizes the Vector Autoregressive (VAR) model to empirically study and compare the relationships between Foreign Direct Investment (FDI), domestic investment (DI), and environmental quality in Jiangsu province. This is achieved through the analysis of impulse response functions. The results indicate that, in the long term, FDI may have smaller negative spillover effects on the environment compared to domestic investment. In the short term, FDI may have a mitigating effect on environmental indicators, while domestic investment may not show the same effect. These findings highlight the importance of considering the impact of different types of investment on environmental sustainability and the potential benefits of foreign investment in promoting cleaner and more sustainable industries. Finally, based on the research results, this thesis proposes reasonable suggestions for Jiangsu Province to promote the harmonious development of the economy and the environment.