Good for the environment? Foreign investment opening in service sector and firm's energy efficiency

Until now, studies on the environmental effect of foreign investment opening (FIO) in service sector are still blank. Actually, development of service sector is significant force for promoting economic modernization for the countries, thus development of service sector is extremely significant for developing countries. In this paper, we select China, the largest developing country, as representative country, in studying environmental effect of FIO in service sector. Our analyses construct theoretical model in studying impacts of FIO in service sector on enterprise's energy efficiency. Then, our analyses employ strictly exogenous policy change of China's foreign investment control clauses to measure FIO in service sector, and empirically identify the causal effects of FIO in service sector on firm's energy efficiency by using unique energy consumption data of Chinese enterprises from 2001 to 2012. Our results imply FIO in service sector could raise energy efficiency, suggesting that FIO in service sector has a positive effect on the environment. Further mechanism tests show that FIO in service sector could lead to improvement of energy efficiency by technology spillover effect and innovation effect. Our analyses give the first evidence on environmental impact of FIO in service sector, which reveals its significant role in promoting economic development of developing countries.