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Abstract
This paper employs impulse response function of VAR model and the estimation
variance decomposition method to investigate the two-way dynamic relationship
between environmental regulation and FDI during 1985 to 2009. The result of
generalized impulse response shows the impact effects of environmental regulation
exerting to FDI become less and less in long-term, which verifies “hypothesis of
pollution haven”. The inverse U-shape curve of “environmental regulation - FDI”
depends on the choice of regulation indicators. Furthermore, the positive impulse
response shows the inflows of FDI would cause the deterioration of ecology and the
intervene of governments, which gives pressure to the transformation of
environmental regulation standard.