Pollution Havens and Foreign Direct Investment: Dirty Secret or Popular Myth?
AbstractThe pollution haven hypothesis refers to the possibility that multinational firms, particularly those engaged in highly polluting activities, relocate to countries with weaker environmental standards. Despite the plausibility and popularity of this hypothesis, the existing literature has found only limited evidence to support it. To enhance our ability to detect the possible dirty secret, this study makes improvements in four areas. First, we focus on investment flows from multiple countries to 25 economies in Eastern Europe and the former Soviet Union. Transition countries are a suitable region for studying this question, as they offer a large variation in terms of environmental standards. Second, we take into explicit account the effect of host country corruption. Third, we include information on both the polluting-intensity of the potential investor and the environmental stringency in the potential host country, which allows us to test whether dirty industries are relatively more attracted to locations with weak standards. And fourth, we rely on firm-level rather than industry-level data. Despite these improvements, we find no support for the pollution haven hypothesis. If anything, firms in less polluting industries are more likely to invest in the region. We find no systematic evidence that FDI from dirtier industries is more likely to go to countries with weak environmental regulations.
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Bibliographic InfoArticle provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.
Volume (Year): 3 (2003)
Issue (Month): 2 (December)
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Web page: http://www.degruyter.com
Other versions of this item:
- Beata K. Smarzynska & Shang-Jin Wei, 2001. "Pollution Havens and Foreign Direct Investment: Dirty Secret or Popular Myth?," NBER Working Papers 8465, National Bureau of Economic Research, Inc.
- Smarzynska Javorcik, Beata & Wei, Shang-Jin, 2001. "Pollution Havens and Foreign Direct Investment: Dirty Secret or Popular Myth?," CEPR Discussion Papers 2966, C.E.P.R. Discussion Papers.
- Smarzynska, Beata K., 2001. "Pollution havens and foreign direct investment : dirty secret or popular myth?," Policy Research Working Paper Series 2673, The World Bank.
- F2 - International Economics - - International Factor Movements and International Business
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