Environmental Technology Transfer in a FDI Regime: A Developing Country Perspective

The environmental impact of Foreign Direct Investment is still to be explored totally. It is often argued that investment may come to a region or country where environment protection norms are less strict. Investors may be induced to outsource their pollution-intensive production where the expected cost of pollution abatement is significantly less. This gave birth to the much debated idea of 'pollution havens', parallel to low-wage havens. Developing countries are more vulnerable to such cases since the environmental legislation and monitoring is not rigorous over there. Again, many have debated that such 'pollution havens' does not typically exist or at the best, transient in nature. Over the last decade, as a result of its policy towards opening up of the economy to the global markets, the extent of multinational activities and their share in trade and industrial production have risen steadily in India. Viewing this development, this paper primarily attempt to show the very existence of such a pollution haven in Indian scenario, analysing time series data for industrial production and international trade of identified pollution intensive industries in the country. Then it argues that, even if of transient nature, the phasing out of such a pollution haven regime is typically dependent upon the active institutional intervention. One important factor, this paper identifies, is of making of state-of-the-art knowledge base of impact analysis and alternative production possibilities that help design prudent environmental policy regime. Also it searches for the right kind of institutional interface at the international, national and industry level; and endeavours to find the implications thereof.