Public appeal, environmental regulation and green investment: Evidence from China

Abstract

While China has enjoyed rapid economic growth, its environment is deteriorating. One critical solution is to shift from fossil fuels to renewable energy. Although carbon markets may provide some financial sources, other financial institutions are needed to raise green investment in order to achieve low carbon growth. This study examines the determinants of green investment in China from the perspective of public appeal by employing economic and econometric models with a panel dataset for 30 provinces over the period from 1998 to 2014. Our results demonstrate that public appeal tends to have a positive effect on increasing green investment in China's context. Other findings show that industry structure, population, and regional Gross Domestic Product have significantly positive impacts on green investment, while openness, energy mix, carbon markets, and Foreign Direct Investment have significantly negative effects on green investment. Importantly, the results of channel analysis suggest that public appeal promotes local governments’ enforcement of stricter environmental regulation, thereby encouraging firms to increase their green investment.