Does foreign direct investment promote environmental performance: An investigation on shadow prices of pollutants

The shadow prices, or marginal abatement cost, of pollutants is a useful measure of environmental performance. Unlike much of the previous studies focusing on only one kind of pollutants, this paper applies the (multiplier) by-production approach to measure the shadow prices of carbon emission, sulfur emission, and dust. The case of regional economies in China is considered. As the foreign direct investment may have an impact on the environmental performance, a spatial Durbin model is utilized to identify the impact of foreign direct investment on the shadow prices of pollutants. The results show that the shadow prices of all three pollutants have been increasing over time which indicates the environmental performance of China has been improving. Moreover, the spatial regression results imply that both foreign direct investment and technology export volume positively impact the shadow price of pollutant emissions across the provinces of China.