Pollution Havens and Foreign Direct Investment : Dirty Secret or Popular Myth?

Pollution Havens and Foreign Direct Investment : Dirty Secret or Popular Myth?

The "pollution haven" hypothesis refers to the possibility that multinational firms, particularly those engaged in highly polluting activities, relocate to countries with weaker environmental standards. Despite the plausibility and popularity of this hypothesis, there is little evidence to support it. The authors identify four obstacles that may have impeded researchers' ability to find evidence in favor of the "pollution haven" hypothesis: 1) The possibility that some features of host countries, such as bureaucratic corruption, may deter inward foreign direct investment and also be positively correlated with lax environmental standards. Omitting this information in statistical analyses may produce misleading results. 2) The possibility that country- or industry-level data, typically used in the literature, may have masked the effect at the firm level. 3) Difficulties associated with measuring environmental standards of the host countries. 4) Difficulties associated with the measuring the pollution intensity of the multinational firms. The authors attempt to surmount these obstacles by explicitly taking into account corruption in host countries and using a firm-level data set on investment projects in 24 transition economies. With these improvements, the authors find some support for the "pollution haven" hypothesis, but evidence is still weak and does not survive numerous robustness checks.

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Bibliographic Details
Main Authors: Smarzynska, Beata K., Wei, Shang-Jin
Language:English
en_US
Published: World Bank, Washington, DC 2001-09
Subjects:ABATEMENT, ABATEMENT CAPITAL, ABATEMENT COSTS, AIR POLLUTION, AIR QUALITY, BACTERIA, BIOCHEMICAL OXYGEN DEMAND, CARBON, CARBON DIOXIDE, CHEMICAL POLLUTION, COAL, COMPARATIVE ADVANTAGE, CONSTRUCTION, CORPORATE TAXES, DEVELOPED COUNTRIES, ECONOMIC ACTIVITY, ECONOMIC ANALYSIS, EFFLUENT, EMISSION, EMISSION STANDARDS, EMISSIONS, EMISSIONS LEVELS, EMPIRICAL ANALYSIS, EMPIRICAL EVIDENCE, EMPIRICAL STUDIES, ENVIRONMENTAL IMPACT, ENVIRONMENTAL IMPACT ASSESSMENT, ENVIRONMENTAL MANAGEMENT, ENVIRONMENTAL PERFORMANCE, ENVIRONMENTAL POLICIES, ENVIRONMENTAL POLICY, ENVIRONMENTAL PROTECTION, ENVIRONMENTAL REGULATIONS, EXPENDITURES, GAS, GREASE, IMPORTS, INCOME, LABOR COSTS, LAKES, LEGISLATION, MPC, OIL, OXYGEN, PASTURES, POLITICAL ECONOMY, POLLUTANT, POLLUTION, POLLUTION ABATEMENT, POLLUTION CONTROL, POLLUTION CONTROL LAWS, POLLUTION INTENSITY, PROPERTY RIGHTS, SULFUR, TAX RATES, TOXIC SUBSTANCES, TOXICITY, TOXICS, TRANSBOUNDARY EFFECTS OF INDUSTRIAL ACCIDENTS, TREATIES, WASTE, WATER POLLUTANT, WATER POLLUTANTS MULTINATIONAL ENTERPRISES, INDUSTRIAL POLLUTION, ENVIRONMENTAL STANDARDS, CORRUPTION IN POLITICS, STATISTICAL ANALYSIS, TRANSITIONAL ECONOMIES, INVESTMENT PROJECTS, FOREIGN DIRECT INVESTMENTS, INTERNATIONAL TREATIES, WATER QUALITY, MULTINATIONAL ENTERPRISES,
Online Access:http://documents.worldbank.org/curated/en/2001/09/1614728/pollution-havens-foreign-direct-investment-dirty-secret-or-popular-myth
https://hdl.handle.net/10986/19555
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Summary:The "pollution haven" hypothesis refers to the possibility that multinational firms, particularly those engaged in highly polluting activities, relocate to countries with weaker environmental standards. Despite the plausibility and popularity of this hypothesis, there is little evidence to support it. The authors identify four obstacles that may have impeded researchers' ability to find evidence in favor of the "pollution haven" hypothesis: 1) The possibility that some features of host countries, such as bureaucratic corruption, may deter inward foreign direct investment and also be positively correlated with lax environmental standards. Omitting this information in statistical analyses may produce misleading results. 2) The possibility that country- or industry-level data, typically used in the literature, may have masked the effect at the firm level. 3) Difficulties associated with measuring environmental standards of the host countries. 4) Difficulties associated with the measuring the pollution intensity of the multinational firms. The authors attempt to surmount these obstacles by explicitly taking into account corruption in host countries and using a firm-level data set on investment projects in 24 transition economies. With these improvements, the authors find some support for the "pollution haven" hypothesis, but evidence is still weak and does not survive numerous robustness checks.

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