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Pollution Haven or Hythe? New Evidence from Mexico

Author

Listed:
  • Andreas Waldkirch

    (Oregon State University)

  • Munisamy Gopinath

    (Oregon State University)

Abstract

Foreign direct investment (FDI) flows into developing countries have been increasing dramatically over the past decade. At the same time, there has been widespread concern that lax environmental standards are in part responsible for this surge. This paper revisits the pollution haven hypothesis by examining to what extent the pollution intensity of production helps explain FDI in Mexico. By focusing on pollution intensities, which are directly related to emission regulations, we avoid the problem of unobservable pollution taxes and allow for substitution between capital and pollution. Examining several different pollutants, we find a positive correlation between FDI and pollution that is both statistically and economically significant in the case of the highly regulated sulfur dioxide emissions. Industries for which the estimated relationship between FDI and pollution is positive receive as much as 40 percent of total FDI and account for as much as 30 percent of manufacturing output. Although our results suggest that environmental considerations matter for firms' location decisions, FDI locates in Mexico also in accordance with its comparative advantage in labor- intensive production processes, consistent with the previous literature.

Suggested Citation

  • Andreas Waldkirch & Munisamy Gopinath, 2004. "Pollution Haven or Hythe? New Evidence from Mexico," International Trade 0412005, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpit:0412005
    Note: Type of Document - pdf; pages: 34. pdf-file, 34 pages
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    References listed on IDEAS

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    Cited by:

    1. Legge, Thomas & Scott, Susan, 2009. "Policy Options to Reduce Ireland's Greenhouse Gas Emissions," Research Series, Economic and Social Research Institute (ESRI), number RS9.
    2. Legge, Thomas & Scott, Susan, 2009. "Policy Options to Reduce Ireland's GHG Emissions [Instrument choice: the pros and cons of alternative policy instruments]," Papers WP284, Economic and Social Research Institute (ESRI).
    3. Kakali Mukhopadhyay, 2006. "Impact on the Environment of Thailand's Trade with OECD Countries," STUDIES IN TRADE AND INVESTMENT,in: Asia-Pacific Trade and Investment Review, volume 2, chapter 2, pages 25-46 United Nations Economic and Social Commission for Asia and the Pacific (ESCAP).

    More about this item

    Keywords

    Foreign Direct Investment; Pollution Haven; Mexico;

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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