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

Beata Smarzynska Javorcik and Shang-Jin Wei
Additional contact information
Beata Smarzynska Javorcik: The World Bank
Shang-Jin Wei: IMF

The B.E. Journal of Economic Analysis & Policy, 2005, vol. contributions.3, issue 2

Abstract: 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, the existing literature has found only limited evidence to support it. To enhance our ability to detect the possible “dirty secret,” this study makes improvements in four areas. First, we focus on investment flows from multiple countries to 25 economies in Eastern Europe and the former Soviet Union. Transition countries are a suitable region for studying this question, as they offer a large variation in terms of environmental standards. Second, we take into explicit account the effect of host country corruption. Third, we include information on both the polluting-intensity of the potential investor and the environmental stringency in the potential host country, which allows us to test whether dirty industries are relatively more attracted to locations with weak standards. And fourth, we rely on firm-level rather than industry-level data. Despite these improvements, we find no support for the “pollution haven” hypothesis. If anything, firms in less polluting industries are more likely to invest in the region. We find no systematic evidence that FDI from “dirtier” industries is more likely to go to countries with weak environmental regulations.

Keywords: Pollution; corruption; foreign direct investment (search for similar items in EconPapers)
JEL-codes: F18 F23 (search for similar items in EconPapers)
Date: 2005
View citations in EconPapers

Downloads: (external link)
http://www.bepress.com/cgi/viewcontent.cgi?article=1244&context=bejeap (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:bpj:bejeap:v:contributions.3:y:2005:i:2:n:8

Access Statistics for this article

More articles in The B.E. Journal of Economic Analysis & Policy from Berkeley Electronic Press
Series data maintained by Avi Warner ().