Are Foreign Investors Attracted to Weak Environmental Regulations? Evaluating the Evidence from China
At the center of the pollution haven debate is the claim that foreign investors from industrial countries are attracted to weak environment regulations in developing countries. Some recent location choice studies have found evidence of this attraction, but only for inward FDI in industrial countries...
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2012
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| Online Access: | http://hdl.handle.net/10986/5603 |
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okr-10986-56032021-04-23T14:02:23Z Are Foreign Investors Attracted to Weak Environmental Regulations? Evaluating the Evidence from China Dean, Judith M. Lovely, Mary E. Wang, Hua Multinational Firms International Business F230 Economic Development: Agriculture Natural Resources Energy Environment Other Primary Products O130 Economic Development: Financial Markets Saving and Capital Investment Corporate Finance and Governance O160 Socialist Systems and Transitional Economies: Natural Resources Energy Environment P280 Air Pollution Water Pollution Noise Hazardous Waste Solid Waste Recycling Q530 Environmental Economics: Government Policy Q580 Other Production and Pricing Analysis R320 At the center of the pollution haven debate is the claim that foreign investors from industrial countries are attracted to weak environment regulations in developing countries. Some recent location choice studies have found evidence of this attraction, but only for inward FDI in industrial countries. The few studies of inward FDI in developing countries have been hampered by weak measures of environmental stringency and by insufficient data to estimate variation in firm response by pollution intensity. This paper tests for pollution haven behavior by estimating the determinants of location choice for equity joint ventures (EJVs) in China. Beginning with a theoretical framework of firm production and abatement decisions, we derive and estimate a location choice model using data on a sample of EJV projects, Chinese effective levies on water pollution, and Chinese industrial pollution intensity. Results show EJVs in highly-polluting industries funded through Hong Kong, Macao, and Taiwan are attracted by weak environmental standards. In contrast, EJVs funded from non-ethnically Chinese sources are not significantly attracted by weak standards, regardless of the pollution intensity of the industry. These findings are consistent with pollution haven behavior, but not by investors from high income countries and only in industries that are highly polluting. Further investigation into differences in technology between industrial and developing country investors might shed new light on this debate. 2012-03-30T07:33:38Z 2012-03-30T07:33:38Z 2009 Journal Article Journal of Development Economics 03043878 http://hdl.handle.net/10986/5603 EN http://creativecommons.org/licenses/by-nc-nd/3.0/igo World Bank Journal Article China Taiwan Macao Hong Kong |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
EN |
| topic |
Multinational Firms International Business F230 Economic Development: Agriculture Natural Resources Energy Environment Other Primary Products O130 Economic Development: Financial Markets Saving and Capital Investment Corporate Finance and Governance O160 Socialist Systems and Transitional Economies: Natural Resources Energy Environment P280 Air Pollution Water Pollution Noise Hazardous Waste Solid Waste Recycling Q530 Environmental Economics: Government Policy Q580 Other Production and Pricing Analysis R320 |
| spellingShingle |
Multinational Firms International Business F230 Economic Development: Agriculture Natural Resources Energy Environment Other Primary Products O130 Economic Development: Financial Markets Saving and Capital Investment Corporate Finance and Governance O160 Socialist Systems and Transitional Economies: Natural Resources Energy Environment P280 Air Pollution Water Pollution Noise Hazardous Waste Solid Waste Recycling Q530 Environmental Economics: Government Policy Q580 Other Production and Pricing Analysis R320 Dean, Judith M. Lovely, Mary E. Wang, Hua Are Foreign Investors Attracted to Weak Environmental Regulations? Evaluating the Evidence from China |
| geographic_facet |
China Taiwan Macao Hong Kong |
| relation |
http://creativecommons.org/licenses/by-nc-nd/3.0/igo |
| description |
At the center of the pollution haven debate is the claim that foreign investors from industrial countries are attracted to weak environment regulations in developing countries. Some recent location choice studies have found evidence of this attraction, but only for inward FDI in industrial countries. The few studies of inward FDI in developing countries have been hampered by weak measures of environmental stringency and by insufficient data to estimate variation in firm response by pollution intensity. This paper tests for pollution haven behavior by estimating the determinants of location choice for equity joint ventures (EJVs) in China. Beginning with a theoretical framework of firm production and abatement decisions, we derive and estimate a location choice model using data on a sample of EJV projects, Chinese effective levies on water pollution, and Chinese industrial pollution intensity. Results show EJVs in highly-polluting industries funded through Hong Kong, Macao, and Taiwan are attracted by weak environmental standards. In contrast, EJVs funded from non-ethnically Chinese sources are not significantly attracted by weak standards, regardless of the pollution intensity of the industry. These findings are consistent with pollution haven behavior, but not by investors from high income countries and only in industries that are highly polluting. Further investigation into differences in technology between industrial and developing country investors might shed new light on this debate. |
| format |
Journal Article |
| author |
Dean, Judith M. Lovely, Mary E. Wang, Hua |
| author_facet |
Dean, Judith M. Lovely, Mary E. Wang, Hua |
| author_sort |
Dean, Judith M. |
| title |
Are Foreign Investors Attracted to Weak Environmental Regulations? Evaluating the Evidence from China |
| title_short |
Are Foreign Investors Attracted to Weak Environmental Regulations? Evaluating the Evidence from China |
| title_full |
Are Foreign Investors Attracted to Weak Environmental Regulations? Evaluating the Evidence from China |
| title_fullStr |
Are Foreign Investors Attracted to Weak Environmental Regulations? Evaluating the Evidence from China |
| title_full_unstemmed |
Are Foreign Investors Attracted to Weak Environmental Regulations? Evaluating the Evidence from China |
| title_sort |
are foreign investors attracted to weak environmental regulations? evaluating the evidence from china |
| publishDate |
2012 |
| url |
http://hdl.handle.net/10986/5603 |
| _version_ |
1764395636665352192 |