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Do Environmental Regulations Effect FDI decisions? The Pollution Haven Hypothesis Revisited

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  • Yoon, Haeyeon
  • Heshmati, Almas

Abstract

In an attempt to verify the pollution haven hypothesis, this study investigates the impact of environmental regulations on foreign direct investment (FDI). We use Korean outward FDI data covering the manufacturing sector for 2009-15. The study not only considers the stringency but also the enforcement of environmental regulations when measuring the degree of the host country’s environmental regulations. Since the pollution haven’s effects indicate moving the polluting production stages from the home country to other (host) countries, we distinguish between investments in the ‘production’ part from that in the non-production part using location information about the host country. The main results of the estimation of a FDI model show that the stricter the regulations in host countries in Asia the lower the FDI both intensively and extensively to those countries. This supports the prevalence of the effects of pollution havens. However, before we separate the FDI into the production part, the effect of environmental regulations on FDI is hindered by the FDI in the non-production part. The results indicate that environmental regulations are determinants of FDI in the production part, while environmental regulations do not have a significant effect on FDI decisions when the entire FDI is considered.

Suggested Citation

  • Yoon, Haeyeon & Heshmati, Almas, 2017. "Do Environmental Regulations Effect FDI decisions? The Pollution Haven Hypothesis Revisited," GLO Discussion Paper Series 86, Global Labor Organization (GLO).
    • Handle: RePEc:zbw:glodps:86
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    1. Satoğlu, E. Beyza & Salmon, Jessica Rae, 2024. "Environmental policy stringency and foreign direct investment: A study considering the impact of country-income level," Energy, Elsevier, vol. 312(C).
    2. Qian Wang & Zhuoya Du & Boyu Wang & Yung‐ho Chiu & Tzu‐Han Chang, 2022. "Environmental regulation and foreign direct investment attractiveness: Evidence from China provinces," Review of Development Economics, Wiley Blackwell, vol. 26(2), pages 899-917, May.
    3. Nor Aznin Abu Bakar & Jimoh Olajide Raji & Rana Muhammad Adeel-Farooq, 2019. "Greenfield, Mergers & Acquisitions, Energy Consumption, and Environmental Performance in selected SAARC and ASEAN countries," International Journal of Energy Economics and Policy, Econjournals, vol. 9(2), pages 216-224.
    4. Joltreau, Eugénie & Sommerfeld, Katrin, 2016. "Why does emissions trading under the EU ETS not affect firms' competitiveness? Empirical findings from the literature," ZEW Discussion Papers 16-062, ZEW - Leibniz Centre for European Economic Research.
    5. Jiangfeng Hu & Zhao Wang & Qinghua Huang & Xiaoqin Zhang, 2019. "Environmental Regulation Intensity, Foreign Direct Investment, and Green Technology Spillover—An Empirical Study," Sustainability, MDPI, vol. 11(10), pages 1-15, May.
    6. YuBiao Hao & XueCheng Zhang, 2023. "The impact of environmental regulation on urban green output efficiency: evidence from China," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 25(6), pages 5717-5735, June.
    7. Qinghua Huang & Min Liu, 2022. "Trade openness and green total factor productivity: testing the role of environment regulation based on dynamic panel threshold model," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 24(7), pages 9304-9329, July.
    8. Xiaodi Yang & Di Wang, 2022. "Heterogeneous Environmental Regulation, Foreign Direct Investment, and Regional Carbon Dioxide Emissions: Evidence from China," Sustainability, MDPI, vol. 14(11), pages 1-19, May.
    9. Lyubov Tsoy & Almas Heshmati, 2024. "Is FDI inflow bad for environmental sustainability?," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(11), pages 28843-28858, November.
    10. Weijiang Liu & Mingze Du, 2021. "Is Technological Progress Selective for Multiple Pollutant Emissions?," IJERPH, MDPI, vol. 18(17), pages 1-17, September.
    11. Muhammad Azam & Hina Khan & Zia Ur Rehman, 2024. "Analyzing the Threshold Effect in the Relationship Between Income and Environmental Degradation in the Middle East and North Africa Region," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(2), pages 6057-6078, June.
    12. Xuhui Ding & Yong Chen & Min Li & Narisu Liu, 2022. "Booster or Killer? Research on Undertaking Transferred Industries and Residents’ Well-Being Improvements," IJERPH, MDPI, vol. 19(22), pages 1-19, November.
    13. Elvis D. Achuo & Clovis Wendji Miamo & Clémence Zite Kouhomou, 2024. "Resource rents and environmental pollution in developing countries: Does the quality of institutions matter?," Review of Development Economics, Wiley Blackwell, vol. 28(1), pages 360-387, February.
    14. Ali Çelik, 2023. "Testing Linear and Nonlinear Relationships Between Foreign Direct Investment and Fossil Energy Consumption in Fragile Five Countries," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(38), pages 1-77, June.
    15. Jianquan Guo & He Cheng, 2024. "Acquirers’ carbon risk, environmental regulation, and cross-border mergers and acquisitions: evidence from China," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 26(6), pages 15861-15904, June.

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    More about this item

    Keywords

    Pollution haven hypothesis; environmental regulation; foreign direct investment;
    All these keywords.

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • K32 - Law and Economics - - Other Substantive Areas of Law - - - Energy, Environmental, Health, and Safety Law
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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