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 popula...
| Main Authors: | , |
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| Format: | Policy Research Working Paper |
| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2014
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2001/09/1614728/pollution-havens-foreign-direct-investment-dirty-secret-or-popular-myth http://hdl.handle.net/10986/19555 |
| 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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