An empirical test of the pollution haven hypothesis for China: intra-host country analysis

Zhongyi Xiao

Nankai Business Review International, 2015, vol. 6, issue 2, 177-198

Abstract: Purpose - – This paper aims to, under the framework of the pollution haven hypothesis (PHH), test the theory that foreign direct investment (FDI) creates an intra-host country pollution haven in developing nations by studying the contemporary case of China. Design/methodology/approach - – This empirical analysis has used a panel dataset of 30 provinces that was analyzed for the period of 1997-2011. An Oaxaca decomposition was also implemented to examine the effects of environmental stringency on regional pollution. Findings - – The estimates indicate that openness to FDI generally appears to be good for the environment. The results of estimation show that the western region of China has developed a potential “comparative advantage” in pollution-intensive industries, thanks to the strong incentive of economic expansion. However, further estimates concerning the location decisions of FDI suggest that the providers of FDI still prefer to locate in the coastal regions of China, where a tighter environmental regulation policy has been imposed. The findings suggest that the better infrastructure and technology spillover of environmental policy-making might be more attractive to FDI than comparatively weak environmental stringency. Originality/value - – This study applies a model advanced in previous theoretical literature which divides the effects of trade into the categories of scale, technique and composition. It also contributes to the understanding of the PHH in the context of intra-host country analysis.

Keywords: China; FDI; Pollution haven hypothesis; Environmental stringency; Pollution haven hypothesis; Intra-host country; Environmental stringency; Intra-host country (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eme:nbripp:v:6:y:2015:i:2:p:177-198

DOI: 10.1108/NBRI-06-2014-0029

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