Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
This paper examines the impacts of national policies on local policy formulation by studying the interplay between a top-down environmental regulation and the local Foreign Direct Investment (FDI) policies. We compiled a database of prefecture-level FDI policies in China spanning four decades and leveraged the Two Control Zones (TCZ) policy that designated some prefectures for pollution abatement. A difference-in-differences analysis shows that the TCZ designated cities formulated more friendly FDI policies after the TCZ policy. Mechanism analyses suggest that local governments loosen FDI regulations to offset economic costs of environmental regulation and attain political promotion.