Impact of FDI on energy efficiency: an analysis of the regional discrepancies in China

Under the assumption of “technology will not be forgotten,” this study estimates and decomposes the total-factor energy efficiency (TFEE) using the sequential data envelopment analysis-Malmquist productivity index and directional distance functions that consider undesirable output based on the provincial panel data of China from 2001 to 2013. On this basis, we make an empirical study of the relationship between foreign direct investment and energy efficiency with the dynamic panel model. The result shows that over the sample period, on the national level, the trend of the TFEE was upward, but the growth rate showed a downward trend. On the regional level, the TFEE in the eastern region was higher than that in the central and western regions. In addition, foreign direct investment enhanced the energy efficiency significantly, which demonstrated that the “pollution halo” effect was greater than the “pollution haven” effect. It is indicated that technical progress was the main cause of the increase in the TFEE, but technical efficiency played the opposite role. This conclusion remains valid even if the TFEE indicator is changed into the single-factor energy efficiency indicator.