Does Lax Environmental Regulations Attract Chinese Outward Foreign Investment? Evidence from Micro-Data

The critical issue in the debate over the pollution haven hypothesis (PHH) is whether the location choice of international investment is influenced by the stringency of environmental regulation. So far previous empirical studies focused on the outward investment from developed countries, while little work has been done on the issue from developing countries. To fill the gap, this paper selects data from China enterprises, using a Logit estimation to determine whether there is a pollution haven effect in the location choice of developing countries’ outward investment. Our results show that Chinese enterprises are attracted by countries with lax environmental regulations; resource-intensive enterprises from China are more sensitive to the stringency of regulation than are technology-intensive enterprises. We contribute to the literature in two ways. First, we provide new evidence in support of the PHH by analyzing investment from developing countries. Further, we show that differences exist in the FDI behavior between resource-intensive and technology-intensive enterprises. Based on this finding, we explain why some previous studies have not found robust evidence of the PHH.