Emission Reduction Investment, Technology Choice and Business Environmental Performance: Evidence from China’s Foreign Investment Liberalization Reform

Pollution has become an unavoidable concern as China’s high-quality development is underway.How to reduce pollution is an imperative issue for China to address.Pollution emissions are closely related to factor inputs,production processes and pollution control measures.Are there other forces to cut emissions besides regulatory control?Taking sulfur dioxide as an example,this paper probes into the potential mechanism through which technical efficiency drives pollution reduction in the context of opening to foreign investment.The results reveal that the openness to foreign investment remarkably lowers pollution emissions of fi rms,with SOEs,large fi rms and exporters seeing more pronounced pollution reduction eff ect after opening to foreign investment,while fi rms in pollution-intensive industries and less regulated areas are weaker in pollution reduction.A look into fi rm behavior suggests that the openness to foreign investment reduces pollutant emissions by improving technical efficiency rather than by raising investment in pollution control.The pollution reduction eff ect resulting from the openness is refl ected in the improvement of intra-fi rm emission reduction capacity instead of inter-fi rm resource reallocation eff ect,according to an analysis at the aggregate level.This paper concludes that technical efficiency gains are an important tool to advance pollution reduction,and that China must be more flexible in leveraging the pollution reduction effect of other policies regarding technical effi ciency to drive its high-quality development that is green.