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Foreign Direct Investment and Pollution Havens Hypothesis: Firm-Level Panel Data Evidence from China

In: Globalization and the Environment of China

Author

Listed:
  • Maoliang Bu
  • Shuwen Zhai
  • Jie Zhang
  • Wenping Zheng

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.

Suggested Citation

  • Maoliang Bu & Shuwen Zhai & Jie Zhang & Wenping Zheng, 2014. "Foreign Direct Investment and Pollution Havens Hypothesis: Firm-Level Panel Data Evidence from China," Frontiers of Economics and Globalization, in: Globalization and the Environment of China, volume 14, pages 73-96, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:fegzzz:s1574-871520140000014004
    DOI: 10.1108/S1574-871520140000014004
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    More about this item

    Keywords

    Foreign direct investment; environmental regulation; pollution haven; China; F18; Q56; O53;
    All these keywords.

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • 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
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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