An Empirical Study on the Technical Efficiency of Foreign Direct Investment in China with Environmental Constraints

Abstract

This article uses a slacks-based measure (SBM) model to evaluate the technical efficiency of foreign direct investment (FDI) in China’s thirty provinces with environmental constraints. Meanwhile, this article also employs the Charnes-Cooper-Rhodes (CCR) model to measure the technical efficiency of FDI without environmental constraints. By comparing these two results under different assumptions, we find the technical efficiency with environmental constraints in most provinces is lower than that without environmental constraints. In terms of technical efficiency, Central China is the highest, Eastern China comes second, and Western China is the lowest in both cases. Besides, the excess pollutant emission is the primary factor that results in the technical inefficiency of FDI.

Keywords:

• technical efficiency
• foreign direct investment
• environmental constraints

Notes

From Table 2, we can find the average value of P_i in Western China is 0.0257, while Central China and Eastern China is 0.0364 and 0.0378, respectively. Western China has the lowest level of pollutant emissions, which means the lack of capacity of controlling pollution is the primary factor leading to the largest efficiency reduction in Western China.