IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China

  • Dean, Judith M.
  • Lovely, Mary E.
  • Wang, Hua

One of the most contentious debates today is whether pollution-intensive industries from rich countries relocate to poor countries with weaker environmental standards, turning them into pollution havens. Empirical studies to date show little evidence to support the pollution haven hypothesis, but suffer potentially from omitted variable bias, specification, and measurement errors. The authors estimate the strength of pollution-haven behavior by examining the location choices of equity joint venture (EJV) projects in China. They derive a location choice model from a theoretical framework that incorporates the firm's production and abatement decision, agglomeration, and factor abundance. The authors estimate conditional logit and nested logit models using new data sets containing information on a sample of EJV projects, effective environmental levies on water pollution, and estimates of Chinese pollution-intensity for 3-digit ISIC (International Standard Industrial Classification) industries. Results from 2,886 manufacturing joint venture projects from 1993-96 show that EJVs from all source countries go into provinces with high concentrations of foreign investment, relatively abundant stocks of skilled workers, concentrations of potential local suppliers, special incentives, and less state ownership. Environmental stringency does affect location choice, but not as expected. Low environmental levies are a significant attraction only for joint ventures in highly-polluting industries with partners from Hong Kong, Macao, and Taiwan (China). In contrast, joint ventures with partners from OECD sources are not attracted by low environmental levies, regardless of the pollution intensity of the industry. The authors discuss the likely role of technological differences in explaining these results.

If 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.

File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2005/02/25/000090341_20050225102439/Rendered/PDF/wps3505.pdf
Download Restriction: no

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 3505.

as
in new window

Length:
Date of creation: 01 Feb 2005
Date of revision:
Handle: RePEc:wbk:wbrwps:3505
Contact details of provider: Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
Email:


More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Hua Wang & Mamingi, Nlandu & Laplante, Benoit & Dasgupta, Susmita, 2002. "Incomplete enforcement of pollution regulation : bargaining power of Chinese factories," Policy Research Working Paper Series 2756, The World Bank.
  2. Hua Wang & Yanhong Jin, 2007. "Industrial Ownership and Environmental Performance: Evidence from China," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 36(3), pages 255-273, March.
  3. Eskeland, Gunnar S. & Harrison, Ann E., 2003. "Moving to greener pastures? Multinationals and the pollution haven hypothesis," Journal of Development Economics, Elsevier, vol. 70(1), pages 1-23, February.
  4. Smarzynska, Beata K., 2001. "Pollution havens and foreign direct investment : dirty secret or popular myth?," Policy Research Working Paper Series 2673, The World Bank.
  5. Harm Zebregs & Wanda Tseng, 2002. "Foreign Direct Investment in China; Some Lessons for Other Countries," IMF Policy Discussion Papers 02/3, International Monetary Fund.
  6. Lanjouw, Jean Olson & Mody, Ashoka, 1996. "Innovation and the international diffusion of environmentally responsive technology," Research Policy, Elsevier, vol. 25(4), pages 549-571, June.
  7. John Henley & Colin Kirkpatrick & Georgina Wilde, 1999. "Foreign Direct Investment in China: Recent Trends and Current Policy Issues," The World Economy, Wiley Blackwell, vol. 22(2), pages 223-243, 03.
  8. Kahn, Matthew E., 1997. "Particulate pollution trends in the United States," Regional Science and Urban Economics, Elsevier, vol. 27(1), pages 87-107, February.
  9. International Monetary Fund, 2005. "Trade Costs and Location of Foreign Firms in China," IMF Working Papers 05/55, International Monetary Fund.
  10. Josh Ederington & Arik Levinson & Jenny Minier, 2003. "Footloose and Pollution-Free," NBER Working Papers 9718, National Bureau of Economic Research, Inc.
  11. Head, Keith & Ries, John, 1996. "Inter-City Competition for Foreign Investment: Static and Dynamic Effects of China's Incentive Areas," Journal of Urban Economics, Elsevier, vol. 40(1), pages 38-60, July.
  12. Werner Antweiler & Brian R. Copeland & M. Scott Taylor, 2001. "Is Free Trade Good for the Environment?," American Economic Review, American Economic Association, vol. 91(4), pages 877-908, September.
  13. Judith M. Dean, 2002. "Does trade liberalization harm the environment? A new test," Canadian Journal of Economics, Canadian Economics Association, vol. 35(4), pages 819-842, November.
  14. Dasgupta, Susmita & Huq, Mainul & Wheeler, David, 1997. "Bending the rules : discretionary pollution control in China," Policy Research Working Paper Series 1761, The World Bank.
  15. Dean, Judith M. & Lovely, Mary E. & Wang, Hua, 2009. "Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China," Journal of Development Economics, Elsevier, vol. 90(1), pages 1-13, September.
  16. Di, Wenhua, 2007. "Pollution abatement cost savings and FDI inflows to polluting sectors in China," Environment and Development Economics, Cambridge University Press, vol. 12(06), pages 775-798, December.
  17. Brian R. Copeland & M. Scott Taylor, 2004. "Trade, Growth, and the Environment," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 7-71, March.
  18. 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.
  19. 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.
  20. Popp, David, 2006. "International innovation and diffusion of air pollution control technologies: the effects of NOX and SO2 regulation in the US, Japan, and Germany," Journal of Environmental Economics and Management, Elsevier, vol. 51(1), pages 46-71, January.
  21. Judith M. Dean & Mary E. Lovely, 2008. "Trade Growth, Production Fragmentation, and China's Environment," NBER Working Papers 13860, National Bureau of Economic Research, Inc.
  22. repec:cup:cbooks:9780521779883 is not listed on IDEAS
  23. Jagdish N. Bhagwati, 2004. "In Defense of Globalization: It Has a Human Face," Rivista di Politica Economica, SIPI Spa, vol. 94(6), pages 9-20, November-.
  24. Dean, Judith M. & Lovely, Mary E. & Wang, Hua, 2004. "Foreign Direct Investment and Pollution Havens: Evaluating the Evidence from China," Working Papers 15854, United States International Trade Commission, Office of Economics.
  25. Bruce A. Blonigen & Miao Wang, 2004. "Inappropriate Pooling of Wealthy and Poor Countries in Empirical FDI Studies," NBER Working Papers 10378, National Bureau of Economic Research, Inc.
  26. Hettige, Hemamala & Martin, Paul & Singh, Manjula & Wheeler,David R., 1995. "The industrial pollution projection system," Policy Research Working Paper Series 1431, The World Bank.
  27. Oecd, 2005. "Governance of Banks in China," Financial Market Trends, OECD Publishing, vol. 2005(2), pages 67-108.
  28. Dean, Judith M., 1992. "Trade and the environment : a survey of the literature," Policy Research Working Paper Series 966, The World Bank.
  29. Broadman, Harry G. & Xiaolun Sun, 1997. "The distribution of foreign direct investment in China," Policy Research Working Paper Series 1720, The World Bank.
  30. Arik Levinson and M. Scott Taylor, 2004. "Unmasking the Pollution Haven Hypothesis," Working Papers gueconwpa~04-04-04, Georgetown University, Department of Economics.
  31. Fung, K. C. & Iizaka, Hitomi & Parker, Stephen, 2002. "Determinants of U.S. and Japanese Direct Investment in China," Journal of Comparative Economics, Elsevier, vol. 30(3), pages 567-578, September.
  32. Cheng, Leonard K. & Kwan, Yum K., 2000. "What are the determinants of the location of foreign direct investment? The Chinese experience," Journal of International Economics, Elsevier, vol. 51(2), pages 379-400, August.
  33. Hettige, Hemamala & Mani, Muthukumara & Wheeler, David, 2000. "Industrial pollution in economic development: the environmental Kuznets curve revisited," Journal of Development Economics, Elsevier, vol. 62(2), pages 445-476, August.
  34. Harry G. Broadman & Xiaolun Sun, 1997. "The Distribution of Foreign Direct Investment in China," The World Economy, Wiley Blackwell, vol. 20(3), pages 339-361, 05.
  35. Wang, Hua & Wheeler, David, 2005. "Financial incentives and endogenous enforcement in China's pollution levy system," Journal of Environmental Economics and Management, Elsevier, vol. 49(1), pages 174-196, January.
  36. repec:sae:niesru:v:149:y::i:1:p:30-52 is not listed on IDEAS
  37. repec:cup:cbooks:9780521770026 is not listed on IDEAS
  38. 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.
  39. Vernon Henderson, 1995. "Effects of Air Quality Regulation," NBER Working Papers 5118, National Bureau of Economic Research, Inc.
  40. List, John A. & McHone, W. Warren & Millimet, Daniel L., 2004. "Effects of environmental regulation on foreign and domestic plant births: is there a home field advantage?," Journal of Urban Economics, Elsevier, vol. 56(2), pages 303-326, September.
  41. Zhang Shuguang & Zhang Yansheng & Wan Zhougxin, 1998. "Measuring the Costs of Protection in China," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 31.
  42. 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.
  43. Wang, Hua & Wheeler, David, 2003. "Equilibrium pollution and economic development in China," Environment and Development Economics, Cambridge University Press, vol. 8(03), pages 451-466, July.
  44. Kling, Catherine L. & Herriges, Joseph A., 1995. "Empirical Investigation of the Consistency of Nested Logit Models with Utility Maximization (An)," Staff General Research Papers 1499, Iowa State University, Department of Economics.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:3505. See general 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: (Roula I. Yazigi)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.