1.1 Research motivation and purpose
Since the launch of the economic reforms in 1978, China has experienced, on average, an approximately 10% rate of economic growth. This brilliant feature has attracted many scholars‟ attention (Sun et al., 2002; Hsiao and Shen, 2003; Wijeweera et al., 2010).
However, the Blacksmiths Institute (2007) indicated that two of the top ten polluted cities of the world were located in Mainland China. This may imply that in order to pursue economic development, Mainland China, like other transitional and less developing countries, had excessively exploited the natural resources and thus resulted in environmental disasters.
United Nations Commission on Sustainable Development suggests that sustainable development should consist of four dimensions: economic, environmental, social, and institutional. In addition, regions within a country should face the similar institutional framework and capacity. Hence, this study tries to evaluate the regional sustainable development of China from the perspectives of economic, environmental, and social dimensions.
Since the beginning of reform, China once faced a serious insufficiency of funds and lags of technology. As a result, Chinese authorities planned to take the advantage of foreign direct investment (FDI) to accelerate the pace of industrialization and upgrade the industries.
They opened 14 coastal cities (Dalian, Qinhuangdao, Tianjin, Yantai, Qingdao, Lianyungang, Nantong, Shanghai, Ningbo, Wenzhou, Fuzhou, Guangzhou, Zhanjiang and Beihai) and established four special economic zones (Shenzhen, Zhuhai, Shantou, and Xiamen) and three major economic regions (the Pearl River Delta, the Yangtze River Delta, and the BoHai Rim).
The State Council further issued the “Provisions for the Encouragement of Foreign Investment” in 1986 to encourage foreign investment, permitting more freedom of
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independent operations for foreign-invested enterprises and granting a more preferential tax policy for foreign investment. Local governments were also given more authority to attract foreign investment (Li and Chen, 2010). Through the management knowledge, skills, technical diffusion and various products brought by FDI, Chinese government hoped to achieve technology transfer, and promote national productivity and efficiency to accomplish the ultimate goal of economic growth. According to the 2010 World Investment Report published by United Nations Conference on Trade and Development (UNCTAD), the FDI inflow of China has reached 95 billion US dollars in 2009, which is the second largest host of FDI in the world only behind US. Moreover, China is also the largest developing countries recipient of FDI since 1991.
Sun et al. (2002), Hsiao and Shen (2003) found that FDI contributed positively to China‟s economic growth. Although FDI may benefit the economic development of the host country, pollution haven hypothesis suggests that foreign investment might result in environmental deterioration, especially in transitional and less developing countries.
Developing countries in general have lax environmental regulations, which attract pollution intensive foreign capital seeking “pollution haven” to evade paying costly expenditure domestically (He, 2006). Lucas et al. (1992) and Birdsall and Wheeler (1993) indicated that the pollution intensity in developing countries will reach its peak when OECD countries formulates strict environmental regulations, consistent with the pollution haven hypothesis.
The Blacksmiths Institute (2007) showed that Linfen of Shanxi and Tianying of Anhui in China are two of the top ten polluted cities in the world. Hence, to fairly evaluate regional developments of Mainland China should not only include FDI, but also incorporate the environmental dimension.
China‟s FDI policy has a strong effect toward the location choice of FDI. The policy is mainly concentrated in the eastern coastal areas. As a result, the eastern coastal area has
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been the top choice for FDI after the reform and opening policy. According to the department of Foreign Investment Administration, Ministry of Commerce of the People‟s Republic of China, the 11 eastern coast provinces have occupied over 80% of total FDI inflow whereas the western 12 provinces only account for less than 5%. As time goes by, due to the imbalanced regional developments, the gap of incomes and unemployment rate have widened between different areas. In addition, as economic development grows the price level starts to increase the living standard of people in lower-developed areas would be more serious than those in higher-developed areas (Groot et al., 2004). Facing the unbalanced development, Chinese authorities have been devoted in promoting the western regions to foreign investors. Furthermore, the State Council established the State Council Leading Group on Western Development to implement the Great Western Development.
Previous literatures only focused on economic and/or environmental dimensions to evaluate regional development of Mainland China. However, it cannot give the whole picture of Mainland China‟s sustainable development without the social dimension.
Therefore, this study will analyze regional sustainable development of China from the perspectives of economic, environmental, and social dimensions. In addition, Crespo and Fontoura (2007) proposed that the FDI spillover effect is usually determined by the absorptive capacity of the local corporation and the technology gap between the local firms and foreign corporations. Buckley et al. (2002) argued that the oversea Chinese regions (Hong Kong, Macau, and Taiwan) are mainly motivated by resource seeking, while the non-overseas Chinese regions are market-oriented. Hence, we also investigate the effect of origins of FDI on regional sustainable development of China.
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1.2 Research Procedure
This study is organized as follows. Following this introduction, Chapter 2 reviews the literatures. Chapter 3 provides the research hypotheses and methodology. Chapter 4 consists of data sources, variable description, empirical results, and discussions. Chapter 5 concludes this study.
Research Background, Motivation, and Purpose
Literature Review
Research Hypotheses
Methodology
Empirical Results and Discussion
Research Conclusions
Figure 1 Research Procedure
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