The Korea Local Administration Review

The purpose of this study is to empirically analyze the effect of Chinese environment regulation on South Korea’s foreign direct investment. According to the earlier studies, the relationship between environmental regulation and FDI were suggested as negative. Because strict regulation decreases foreign firm’s investment motivation, and they would likely to invest foreign countries with more loose regulation. In this study, more concretely, we examine how environmental regulation of each Chinese provincial government affects FDI of South Korea. From the result, we find the evidence for supporting the hypothesis. That is, South Korea’s FDI is negatively affected by strictness of environmental regulation of each provinces. However, it is suggested that major specific industries are significant however the other industries such as textile, wood and pulp, chemistry are not significant. Thus, it can be assumed that there are differences for impact of environmental regulation on South Korea’s FDI. Finally, This study would contribute to the development of study which discusses pollution heaven hypothesis and FDI.

□ Keywords: foreign direct investment(FDI), environmental regulation, China