Environmental Engineering Reference
In-Depth Information
11
Foreign direct investment and clean technology
leapfrogging in China
Kelly Sims Gallagher
It has often been assumed that foreign direct investment (FDI) in developing countries
brings with it more advanced technologies from the home country. Embedded in this
assumption is the notion that foreign investors also bring cleaner technologies with them,
thereby allowing the developing countries to 'leapfrog' to the most advanced environ-
mental technologies available. Contrary to this notion is the pollution haven hypothesis,
wherein large multinational companies move to developing countries because of their
weaker environmental standards.
Some scholars and policy-makers have taken the wrong lesson from the empirical evi-
dence regarding the pollution-haven hypothesis. As the chapter by Copeland in this
volume (Chapter 4) demonstrates, most multinational companies do not move to devel-
oping countries because of their weaker environmental standards. Some policy-makers
have interpreted these
ndings to mean that one not need formulate policies to address
the environmental impact of foreign investment. From a scholarly perspective, though,
the pollution-haven hypothesis is strictly a '
fi
fi
rm location' theory, and makes no pretense
about explaining the behavior of foreign
fi
rms once they have already invested in or moved
to a developing country.
This chapter looks mainly at the environmental behavior of multinational corporations
investing in China, speci
rms as they formed
joint ventures with Chinese counterparts. The US Big Three automakers clearly did not
move to China in order to exploit its weaker environmental laws but instead they invested
in order to serve China's exploding domestic automobile market. They saw China as the
next big emerging market for the industry. This chapter, however, which draws on a larger
topic on the subject, demonstrates that the US
fi
cally taking the case of the US automotive
fi
rms did not automatically transfer state-
of-the-art environmental technologies to China when they started their operations there
due to a stark lack of incentives to do so (Gallagher, 2006a). There is evidence of this lack
of technological leapfrogging from FDI in other industries elsewhere in China, and this
is reviewed as well. The main lesson for research and policy, then, is that FDI will not
automatically transfer cleaner technologies to developing countries - and therefore that
environmental leapfrogging is not automatic through FDI. A coherent incentive structure
largely composed of policies and institutions must be in place in order to elicit cleaner
technology transfer.
This chapter
fi
rst reviews the existing theories of the impact of FDI on environmental
quality. It then examines the current situation in China in terms of trends in environ-
mental quality, and the situation with FDI in China. The case of FDI in the auto indus-
try in China is discussed in some detail before turning to the lessons for research and
policy.
fi
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