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Green Havens and Pollution Havens

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  • Steven Poelhekke
  • Rick Van der Ploeg

Abstract

We test for pollution haven effects in outward foreign direct investment (FDI) for different sectors using a comprehensive and exhaustive dataset for outward FDI from the Netherlands, one of the most environmentally stringent countries and a major source of global FDI. Our evidence suggests that in the sectors natural resources extraction and refining, construction, retail, food processing, beverages and tobacco, and utilities, a less stringent environmental policy in the host country significantly attracts FDI. What is important for these pollution haven effects is not only regulation but also enforcement of environmental policy. In contrast to earlier results, it is not only footloose industries that display pollution haven effects, but also the traditional pollution-intensive industries. But for the sectors machines, electronics and automotive and transportation and communication a more stringent and better enforced environmental policy attracts more FDI as this may help their reputation for sustainable management and CSR. These sectors display green haven effects. These findings have important implications for the sector distribution of FDI in destination countries

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3841.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3841

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Keywords: pollution haven; green haven; FDI; environmental policy; regulation; enforcement; strategic effects; footloose industries; CSR;

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  1. Josh Ederington & Arik Levinson & Jenny Minier, 2003. "Footloose and Pollution-Free," NBER Working Papers 9718, National Bureau of Economic Research, Inc.
  2. A. Colin Cameron & Jonah B. Gelbach & Douglas L. Miller & Doug Miller, 2009. "Robust Inference with Multi-way Clustering," Working Papers 98, University of California, Davis, Department of Economics.
  3. Eskeland, Gunnar S. & Harrison, Ann E., 1997. "Moving to greener pastures : multinationals and the pollution-haven hypothesis," Policy Research Working Paper Series 1744, The World Bank.
  4. World Bank, 2011. "The Changing Wealth of Nations : Measuring Sustainable Development in the New Millennium," World Bank Publications, The World Bank, number 2252, July.
  5. Brian R. Copeland & M. Scott Taylor, 2003. "Trade, Growth and the Environment," NBER Working Papers 9823, National Bureau of Economic Research, Inc.
  6. Ulrich Wagner & Christopher Timmins, 2009. "Agglomeration Effects in Foreign Direct Investment and the Pollution Haven Hypothesis," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(2), pages 231-256, June.
  7. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
  8. List, John A. & Co, Catherine Y., 2000. "The Effects of Environmental Regulations on Foreign Direct Investment," Journal of Environmental Economics and Management, Elsevier, vol. 40(1), pages 1-20, July.
  9. Steven Poelhekke & Frederick van der Ploeg, 2009. "Foreign Direct Investment And Urban Concentrations: Unbundling Spatial Lags," Journal of Regional Science, Wiley Blackwell, vol. 49(4), pages 749-775.
  10. Blonigen, Bruce A. & Davies, Ronald B. & Waddell, Glen R. & Naughton, Helen T., 2007. "FDI in space: Spatial autoregressive relationships in foreign direct investment," European Economic Review, Elsevier, vol. 51(5), pages 1303-1325, July.
  11. Fredriksson, Per G. & List, John A. & Millimet, Daniel L., 2003. "Bureaucratic corruption, environmental policy and inbound US FDI: theory and evidence," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1407-1430, August.
  12. Arik Levinson & M. Scott Taylor, 2008. "Unmasking The Pollution Haven Effect," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 223-254, 02.
  13. Wacziarg, Romain & Welch, Karen Horn, 2003. "Trade Liberalization and Growth: New Evidence," Research Papers 1826, Stanford University, Graduate School of Business.
  14. Poelhekke, Steven & van der Ploeg, Frederick, 2010. "Do Natural Resources Attract FDI? Evidence from Non-Stationary Sector-Level Data," CEPR Discussion Papers 8079, C.E.P.R. Discussion Papers.
  15. Raymond J.G.M. Florax & Hendrik Folmer & Sergio J. Rey, 2002. "Specification Searches in Spatial Econometrics: The Relevance of Hendry's Methodology," Urban/Regional 0202001, EconWPA.
  16. Kahn Matthew E & Yoshino Yutaka, 2004. "Testing for Pollution Havens Inside and Outside of Regional Trading Blocs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-32, October.
  17. Josh Ederington & Jenny Minier, 2003. "Is environmental policy a secondary trade barrier? An empirical analysis," Canadian Journal of Economics, Canadian Economics Association, vol. 36(1), pages 137-154, February.
  18. Wolfgang Keller & Arik Levinson, 2002. "Pollution Abatement Costs and Foreign Direct Investment Inflows to U.S. States," The Review of Economics and Statistics, MIT Press, vol. 84(4), pages 691-703, November.
  19. Markus Kitzmueller & Jay Shimshack, 2012. "Economic Perspectives on Corporate Social Responsibility," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 51-84, March.
  20. Randy Becker & Vernon Henderson, 2000. "Effects of Air Quality Regulations on Polluting Industries," Journal of Political Economy, University of Chicago Press, vol. 108(2), pages 379-421, April.
  21. Kellenberg, Derek K., 2009. "An empirical investigation of the pollution haven effect with strategic environment and trade policy," Journal of International Economics, Elsevier, vol. 78(2), pages 242-255, July.
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