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The Effect of FDI on Environmental Degradation in Romania: Testing the Pollution Haven Hypothesis

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  • Alexandru Chiriluș

    (Department of Statistics and Econometrics, Cybernetics and Statistics Doctoral School, Faculty of Cybernetics, Statistics and Informatics in Economy, Bucharest University of Economic Studies, 15-17 Calea Dorobanti St., 010552 Bucharest, Romania)

  • Adrian Costea

    (Department of Statistics and Econometrics, Cybernetics and Statistics Doctoral School, Faculty of Cybernetics, Statistics and Informatics in Economy, Bucharest University of Economic Studies, 15-17 Calea Dorobanti St., 010552 Bucharest, Romania)

Abstract

The study examines the relationship between CO 2 emissions, trade openness, GDP growth and foreign direct investment (FDI) in Romania. The research aims to provide empirical evidence for either the pollution haven hypothesis (PHH) or the pollution halo effect (PHE). The pollution haven hypothesis suggests that countries with weaker environmental regulations and lower environmental quality are more attractive to FDI, while the pollution halo effect posits that countries with high levels of environmental protection and quality can generate positive spillover effects for FDI. The findings suggest a significant relationship between CO 2 emissions, GDP growth and FDI inflows, with GDP growth having a greater effect on FDI than CO 2 emissions. GDP growth has a causal effect on CO 2 emissions, while CO 2 emissions have a causal effect on FDI. These findings have important policy implications, as they highlight the interplay between economic growth, environmental degradation, and foreign investment. Policies aimed at reducing emissions must be comprehensive and coordinated in order to achieve significant emissions reductions and strike a balance between economic growth and environmental protection.

Suggested Citation

  • Alexandru Chiriluș & Adrian Costea, 2023. "The Effect of FDI on Environmental Degradation in Romania: Testing the Pollution Haven Hypothesis," Sustainability, MDPI, vol. 15(13), pages 1-16, July.
    • Handle: RePEc:gam:jsusta:v:15:y:2023:i:13:p:10733-:d:1189219
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