Does Local Government’s Competitive Behavior to Attract Foreign Investment Affect Ecological Welfare Performance? Evidence from China

Abstract

Ecological welfare performance (EWP) is an essential indicator of sustainable socioeconomic development. In China, the government-led economic development paradigm mandates that the competitive behavior of local governments is a major influencing factor on EWP. This research explores how the government’s competitive behavior to attract foreign investment affects ecological welfare performance. Based on the super-efficiency slacks-based measure (SBM) model to assess the level of EWP in China, this paper utilizes a two-way fixed-effects model to determine the impact of local governments’ foreign investment competition on EWP. The results indicate the following. (1) Although introducing foreign investment may promote regional EWP, local governments’ vicious competition in introducing foreign investment is detrimental to its improvement. (2) The effect of local governments’ foreign investment competition on EWP exhibits various heterogeneous characteristics that depend on the differences in the regional distribution and intensity of competition for fiscal revenue and expenditures. (3) Resource factor mobility has a significant moderating effect on the impact of local governments’ competition for foreign investment on EWP. Capital mobility weakens the inhibitory effect of governments’ competition for foreign investment on the enhancement of EWP, while technological mobility and labor mobility have the opposite moderating effect. These findings may clarify the impact of governments’ competition for foreign investment on EWP and provide policy guidelines and implications for other countries pursuing the expansion of foreign direct investment (FDI).