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Comparative Environmental Regulation and Foreign Investment Inflows: Is China a Pollution Haven?

In: Globalization and the Environment of China

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  • Maoliang Bu
  • ChinTe Lin
  • Shuwen Zhai

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.

Suggested Citation

  • Maoliang Bu & ChinTe Lin & Shuwen Zhai, 2014. "Comparative Environmental Regulation and Foreign Investment Inflows: Is China a Pollution Haven?," Frontiers of Economics and Globalization, in: Globalization and the Environment of China, volume 14, pages 1-20, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:fegzzz:s1574-871520140000014001
    DOI: 10.1108/S1574-871520140000014001
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    More about this item

    Keywords

    Pollution haven hypothesis; endogeneity; comparative environmental regulation; inward FDI; China; F18; Q53; Q56;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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