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Abstract

This paper tests the pollution haven hypothesis by examining the relationship between environmental regulation and foreign investment with consideration of the role of corporate social responsibility, which has so far been neglected. Using multinationals’ investment data from China, our results in general support the pollution haven hypothesis that less stringent environmental regulation is more attractive for multinationals to invest in China, but high social responsibility can counteract attractiveness of weak environmental regulation.

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Book part
Publication date: 13 November 2014

Maoliang Bu, Shuwen Zhai, Jie Zhang and Wenping Zheng

The central debate on pollution havens concerns whether the level of environmental regulation in developing countries influences foreign investment location decisions…

Abstract

The central debate on pollution havens concerns whether the level of environmental regulation in developing countries influences foreign investment location decisions. Most empirical studies are based on aggregate data, while micro-level evidence is relatively lacking in the literature. To fill this research gap, this paper tests for the existence of intracountry pollution havens in China by estimating the determinants of foreign investment flows based on a large firm-level panel dataset. Evidence from this study supports the existence of pollution havens within China in certain industries. However, the sensitivity of foreign investment to environmental regulation varies significantly across industries with different pollution characteristics. Furthermore, when the impact of government subsidies on foreign investment is accounted for, the results show that subsidies can compensate for pollution treatment costs in provinces with stricter environmental regulation.

Details

Globalization and the Environment of China
Type: Book
ISBN: 978-1-78441-179-4

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Article
Publication date: 1 June 2015

Zhongyi Xiao

This paper aims to, under the framework of the pollution haven hypothesis (PHH), test the theory that foreign direct investment (FDI) creates an intra-host country…

Abstract

Purpose

This paper aims to, under the framework of the pollution haven hypothesis (PHH), test the theory that foreign direct investment (FDI) creates an intra-host country pollution haven in developing nations by studying the contemporary case of China.

Design/methodology/approach

This empirical analysis has used a panel dataset of 30 provinces that was analyzed for the period of 1997-2011. An Oaxaca decomposition was also implemented to examine the effects of environmental stringency on regional pollution.

Findings

The estimates indicate that openness to FDI generally appears to be good for the environment. The results of estimation show that the western region of China has developed a potential “comparative advantage” in pollution-intensive industries, thanks to the strong incentive of economic expansion. However, further estimates concerning the location decisions of FDI suggest that the providers of FDI still prefer to locate in the coastal regions of China, where a tighter environmental regulation policy has been imposed. The findings suggest that the better infrastructure and technology spillover of environmental policy-making might be more attractive to FDI than comparatively weak environmental stringency.

Originality/value

This study applies a model advanced in previous theoretical literature which divides the effects of trade into the categories of scale, technique and composition. It also contributes to the understanding of the PHH in the context of intra-host country analysis.

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Book part
Publication date: 13 November 2014

Maoliang Bu and Ruifeng Huo

The critical issue in the debate over the pollution haven hypothesis (PHH) is whether the location choice of international investment is influenced by the stringency of…

Abstract

The critical issue in the debate over the pollution haven hypothesis (PHH) is whether the location choice of international investment is influenced by the stringency of environmental regulation. So far previous empirical studies focused on the outward investment from developed countries, while little work has been done on the issue from developing countries. To fill the gap, this paper selects data from China enterprises, using a Logit estimation to determine whether there is a pollution haven effect in the location choice of developing countries’ outward investment. Our results show that Chinese enterprises are attracted by countries with lax environmental regulations; resource-intensive enterprises from China are more sensitive to the stringency of regulation than are technology-intensive enterprises. We contribute to the literature in two ways. First, we provide new evidence in support of the PHH by analyzing investment from developing countries. Further, we show that differences exist in the FDI behavior between resource-intensive and technology-intensive enterprises. Based on this finding, we explain why some previous studies have not found robust evidence of the PHH.

Details

Globalization and the Environment of China
Type: Book
ISBN: 978-1-78441-179-4

Keywords

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Article
Publication date: 19 September 2017

Yanmin Shao

This paper aims to clarify the relationship between foreign direct investment (FDI) and carbon intensity. This study uses the dynamic panel data model to study and provide…

Abstract

Purpose

This paper aims to clarify the relationship between foreign direct investment (FDI) and carbon intensity. This study uses the dynamic panel data model to study and provide fresh evidence for the issue.

Design/methodology/approach

This study first uses the dynamic panel data model to consider the endogeneity problem, and applies a system-generalized method of moments estimator to study the effect of FDI on carbon intensity using the panel data of 188 countries during 1990-2013.

Findings

The result shows that FDI has a significant negative impact on carbon intensity of the host country. After considering the other factors, including share of fossil fuels, industrial intensity, urbanization level and trade openness, the impact of FDI on carbon intensity is still significantly positive. In addition, FDI also has a significant negative impact on carbon intensity of high-income countries and middle- and low-income countries.

Originality/value

This paper offers two contributions to the literature on the effect of FDI on carbon intensity. From a methodological perspective, this paper is the first to apply a dynamic panel data model to study the effect of FDI on carbon intensity using worldwide panel data. Second, this paper is the first to analyze the effect of FDI on carbon intensity in different countries with different income levels separately.

Details

International Journal of Climate Change Strategies and Management, vol. 10 no. 1
Type: Research Article
ISSN: 1756-8692

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Article
Publication date: 2 July 2020

Ayesha Ashraf, Nadia Doytch and Merih Uctum

This study aims to examine the effect of greenfield foreign direct investment (GFDI) and mergers and acquisitions (M&A) on the environment and more specifically, on the…

Abstract

Purpose

This study aims to examine the effect of greenfield foreign direct investment (GFDI) and mergers and acquisitions (M&A) on the environment and more specifically, on the sectoral emissions of CO2. The authors identify significant differential and income effects with various data classifications of foreign direct investment (FDI) mode of entry.

Design/methodology/approach

The authors use system generalized method of moments with instruments for income and GFDI and M&A, which allows us to control for present reverse causality and endogeneity of income and the two modes of FDI.

Findings

Evidence from the full sample reveals that GFDI increases pollution, supporting the pollution haven hypothesis, while M&As decrease pollution in line with the halo effect hypothesis. GFDI flowing into poorer countries worsens the environment, while M&As flowing to industrialized economies reduce pollution. Entry-mode effects are also present at the level of industry emissions. GFDI in developed economies decreases pollution in transport industry but increases it in poorer countries.

Practical implications

The authors demonstrate: first, a recipient country level-of-development effect: GFDI investment flowing into poorer countries has harmful effects on environment, but no significant effect in rich economies, while M&As flowing to industrialized economies have a beneficial effect to the environment, supporting the halo hypothesis. Second, the authors demonstrate a differential entry-mode effect at the industry level: GFDI in developed economies decreases pollution from transport industry, while both modes of entry in developing economies increase it.

Social implications

M&As emerge as a type of FDI that is less harmful to the environment. This is especially true in the case of developed economies. However, policymakers should oversee strictly the inbound GFDI flows and determine whether they carry “dirty” or “clean” production processes. This is the type of FDI to be regulated and scrutinized to ensure that economic development is fostered alongside environmental conservation.

Originality/value

In existing theoretical and empirical literature, little guidance is available on which mode of entry would have greater effect on the environment of the host country. This paper answers this issue by disaggregating FDI flows into GFDI and M&As and examining how each mode of entry impacts pollution in host countries. To the best of the knowledge, this is the first study that analyzes the environmental impact of the two modes of entry of FDI while disentangling the environmental Kuznets curve effect from the halo effect.

Details

Sustainability Accounting, Management and Policy Journal, vol. 12 no. 1
Type: Research Article
ISSN: 2040-8021

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Book part
Publication date: 13 November 2014

Maoliang Bu, ChinTe Lin and Shuwen Zhai

This paper investigates how relative environmental regulation influences the flow of foreign direct investment (FDI), and thereby assesses the pollution haven hypothesis

Abstract

This paper investigates how relative environmental regulation influences the flow of foreign direct investment (FDI), and thereby assesses the pollution haven hypothesis (PHH). In this field, conflicting results exist, partly due to the mere consideration of absolute environmental regulation or the inadequate consideration of endogeneity. Concerning these, we study China’s inward FDI from 26 developed countries and 12 developing countries over 1996–2009, and collect four different environmental regulation indicators at relative values of CO2, SO2, PM10, and an environmental regulation index. Using an instrumental variable approach, we find strong PHH evidence no matter for the subsample of FDI from developed countries or the one from developing countries. Moreover, we show how such results can be masked if failing to consider the endogeneity.

Details

Globalization and the Environment of China
Type: Book
ISBN: 978-1-78441-179-4

Keywords

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Book part
Publication date: 13 November 2014

Boqiong Yang, Xiaobing Wang and Jun Yang

The huge flow of foreign direct investment (FDI) in recent decades has prompted concern among policy-makers and researchers regarding its impact on the environment, as…

Abstract

The huge flow of foreign direct investment (FDI) in recent decades has prompted concern among policy-makers and researchers regarding its impact on the environment, as well as its contribution to China’s economic growth. In this study, by combining FDI and trade pollution theory, we establish a model to evaluate the impact of FDI on pollution, which facilitates testing the “pollution havenhypothesis. Our results indicate that FDI is concentrated in pollution-intense industries. Moreover, it is necessary to undertake further research on FDI pollution with new data after environmental regulation.

Details

Globalization and the Environment of China
Type: Book
ISBN: 978-1-78441-179-4

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Article
Publication date: 1 January 2006

Selim Cagatay and Hakan Mihci

To construct an index (index of environmental sensitivity performance) to be used in a cross‐country trade model in order to analyze the effect of various degrees of…

Abstract

Purpose

To construct an index (index of environmental sensitivity performance) to be used in a cross‐country trade model in order to analyze the effect of various degrees of environmental stringency on the trade patterns, and especially on the export performance of the countries.

Design/methodology/approach

The gravity model of trade is used in order to find the effects of environmental stringency on the variation in trade flows.

Findings

The study shows that environmental stringency has an important impact on the export of the countries. The impact of the degree of environmental stringency on the exports is significantly negative suggesting an inverse relationship between export values and relative environmental sensitivity performance of the nations.

Originality/value

This study supports the argument that the environmental stringency level differential between developing and developed nations is a crucial criteria in terms of explaining shifts in the trade patterns and international specialization of the countries.

Details

Journal of Economic Studies, vol. 33 no. 1
Type: Research Article
ISSN: 0144-3585

Keywords

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Article
Publication date: 10 November 2020

Aparna Sajeev and Simrit Kaur

Based on the hypothesis of the environmental Kuznets curve (EKC), the purpose of this study is to investigate the relationship between environmental pollutants (as…

Abstract

Purpose

Based on the hypothesis of the environmental Kuznets curve (EKC), the purpose of this study is to investigate the relationship between environmental pollutants (as measured by CO2 emissions) and GDP for India, over the period 1980–2012. The presence of an inverted “U” shape relationship is examined while controlling for factors such as the degree of trade openness, foreign direct investment, oil prices, the legal system and industrialization.

Design/methodology/approach

To verify whether the EKC follows a linear, quadratic or polynomial form, autoregressive distributed lag (ARDL) bounds testing approach for cointegration with structural breaks is adopted. The annual time series data for carbon emissions (CO2), economic growth (GDP), industrial development (industrialization), foreign direct investment and trade openness have been obtained from World Development Indicators online database. Crude oil price (international price index) for the period is collected from the International Monetary Fund. Data for total petroleum consumption are collected from the US Energy Information Agency. Data for economic freedom variables are from the Fraser Institute's Economic Freedom Index's online database.

Findings

The findings support the existence of inverted U-shaped EKC in the short-run, but not in the long-run. A linear monotonic relationship has also been estimated in select model specifications. Additionally, trade openness has been estimated to reduce emissions in models, which incorporate FDI. Else, where significant, its impact on carbon emissions is adverse. A rise in fuel price leads to reduction in carbon emissions across model specifications. Further, the lower size of government degrades the environment both in the long-run and short-run.

Practical implications

Given the existence of the pollution haven hypothesis, wherein more trade and foreign direct investments cause environmental degradation, the paper proposes formulation of appropriate regulatory mechanisms that are environmentally friendly. Additionally, India's new economic policies, favoring liberalization, privatization and globalization, reinforces the need to strengthen environmental regulations.

Originality/value

Incorporation of economic freedom as measured by the “Size of Government” in the EKC model is unique. “Size of Government” deserves a special mention. The rationale for including this explanatory variable is to understand whether countries with lower government size are more polluting. After all, theory does suggest that goods and services, which have higher social cost vis-à-vis private cost, shall be overproduced in economies that adopt more market-friendly policies, necessitating government intervention. In the study, size of government is measured as per the definition and methodology adopted by Fraser Institute's Economic Freedom of the World Index.

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