Agglomeration Effects in Foreign Direct Investment and the Pollution Haven Hypothesis
AbstractDoes environmental regulation impair international competitiveness of pollution-intensive industries to the extent that they relocate to countries with less stringent regulation, turning those countries into "pollution havens"? We test this hypothesis using panel data on outward foreign direct investment (FDI) flows of various industries in the German manufacturing sector and account for several econometric issues that have been ignored in previous studies. Most importantly, we demonstrate that externalities associated with FDI agglomeration can bias estimates away from finding a pollution haven effect if omitted from the analysis. We include the stock of inward FDI as a proxy for agglomeration and employ a GMM estimator to control for endogenous, time-varying determinants of FDI flows. Furthermore, we propose a difference estimator based on the least polluting industry to break the possible correlation between environmental regulatory stringency and unobservable attributes of FDI recipients in the cross-section. When accounting for these issues we find robust evidence of a pollution haven effect for the chemical industry.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Duke University, Department of Economics in its series Working Papers with number 10-05.
Date of creation: 2010
Date of revision:
Contact details of provider:
Postal: Department of Economics Duke University 213 Social Sciences Building Box 90097 Durham, NC 27708-0097
Phone: (919) 660-1800
Fax: (919) 684-8974
Web page: http://econ.duke.edu/
agglomeration effects; congestion effects; environmental regulation; foreign direct investment; German manufacturing; panel data; pollution havens;
Other versions of this item:
- 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.
- F18 - International Economics - - Trade - - - Trade and Environment
- F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
- Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Arik Levinson & M. Scott Taylor, 2004.
"Unmasking the Pollution Haven Effect,"
NBER Working Papers
10629, National Bureau of Economic Research, Inc.
- M Arellano & O Bover, 1990.
"Another Look at the Instrumental Variable Estimation of Error-Components Models,"
CEP Discussion Papers
dp0007, Centre for Economic Performance, LSE.
- Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
- Josh Ederington, Arik Levinson & Jenny Minier, 2003.
"Footlose and Pollution Free,"
gueconwpa~03-03-04, Georgetown University, Department of Economics.
- Yuquing Xing & Charles Kolstad, 2002.
"Do Lax Environmental Regulations Attract Foreign Investment?,"
Environmental & Resource Economics,
European Association of Environmental and Resource Economists, vol. 21(1), pages 1-22, January.
- Kolstad, Charles D. & Xing, Yuqing, 1998. "Do Lax Environmental Regulations Attract Foreign Investment?," University of California at Santa Barbara, Economics Working Paper Series qt3268z4rx, Department of Economics, UC Santa Barbara.
- Edward Glaeser, 1997.
"Learning in Cities,"
NBER Working Papers
6271, National Bureau of Economic Research, Inc.
- Edward L. Glaeser, 1997. "Learning in Cities," Harvard Institute of Economic Research Working Papers 1814, Harvard - Institute of Economic Research.
- Keith Head & John Ries & Deborah Swenson, 1994.
"Agglomeration Benefits and Location Choice: Evidence from Japanese Manufacturing Investment in the United States,"
NBER Working Papers
4767, National Bureau of Economic Research, Inc.
- Head, Keith & Ries, John & Swenson, Deborah, 1995. "Agglomeration benefits and location choice: Evidence from Japanese manufacturing investments in the United States," Journal of International Economics, Elsevier, vol. 38(3-4), pages 223-247, May.
- 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.
- Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
- Claudia M. Buch & Jörn Kleinert & Alexander Lipponer & Farid Toubal, 2005. "Determinants and effects of foreign direct investment: evidence from German firm-level data," Economic Policy, CEPR & CES & MSH, vol. 20(41), pages 52-110, 01.
- Keith Head & Thierry Mayer, 2004.
"Market Potential and the Location of Japanese Investment in the European Union,"
The Review of Economics and Statistics,
MIT Press, vol. 86(4), pages 959-972, November.
- Head, Charles Keith & Mayer, Thierry, 2002. "Market Potential and the Location of Japanese Investment in the European Union," CEPR Discussion Papers 3455, C.E.P.R. Discussion Papers.
- Goldstein, G. S. & Gronberg, T. J., 1984. "Economies of scope and economies of agglomeration," Journal of Urban Economics, Elsevier, vol. 16(1), pages 91-104, July.
- Daniel Millimet & John List, 2004. "The Case of the Missing Pollution Haven Hypothesis," Journal of Regulatory Economics, Springer, vol. 26(3), pages 239-262, 08.
- Zeng, Dao-Zhi & Zhao, Laixun, 2009.
"Pollution havens and industrial agglomeration,"
Journal of Environmental Economics and Management,
Elsevier, vol. 58(2), pages 141-153, September.
- de Melo, Jaime & Grether, Jean-Marie, 2003.
"Globalization and Dirty Industries: Do Pollution Havens Matter?,"
CEPR Discussion Papers
3932, C.E.P.R. Discussion Papers.
- Jean-Marie Grether & Jaime de Melo, 2003. "Globalization and Dirty Industries: Do Pollution Havens Matter?," NBER Working Papers 9776, National Bureau of Economic Research, Inc.
- Robert J. R. Elliott & Kenichi Shimamoto, 2008. "Are ASEAN Countries Havens for Japanese Pollution-Intensive Industry?," The World Economy, Wiley Blackwell, vol. 31(2), pages 236-254, 02.
- Matthew A. Cole & Robert J. R. Elliott & Per G. Fredriksson, 2006. "Endogenous Pollution Havens: Does FDI Influence Environmental Regulations?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(1), pages 157-178, 03.
- Copeland,B.R. & Scott Taylor,M., 2003.
"Trade, growth and the environment,"
10, Wisconsin Madison - Social Systems.
- 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.
- Christian A. L. Hilber & Ioan Voicu, 2006. "Agglomeration economies and the location of foreign direct investment: quasi-experimental evidence from Romania," LSE Research Online Documents on Economics 3574, London School of Economics and Political Science, LSE Library.
- Tim Jeppesen & John A. List & Henk Folmer, 2002. "Environmental Regulations and New Plant Location Decisions: Evidence from a Meta-Analysis," Journal of Regional Science, Wiley Blackwell, vol. 42(1), pages 19-49.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Department of Economics Webmaster).
If references are entirely missing, you can add them using this form.