The Effectiveness of Environmental Regulation in E7 and G7 Countries: Revisiting the Pollution Halo and Pollution Haven Hypothesis

Ebru Bilgin, Nazmiye Tekdemir and Pelin Varol İyidoğan

Politická ekonomie, vol. preprint

Abstract: This study examines the environmental impact of foreign direct investment (FDI) in E7 and G7 countries from 2005 to 2020 using ecological footprint as a comprehensive indicator. Employing both linear and nonlinear dynamic panel models, the findings reveal that the environmental effects of FDI are contingent upon the stringency and type of environmental regulation. In E7 countries, FDI tends to worsen environmental degradation under weak regulatory frameworks, providing partial support for the Pollution Haven Hypothesis (PHV). In contrast, in G7 countries, FDI contributes to environmental improvement when market-based and technology-oriented policies surpass certain thresholds, aligning with the Pollution Halo Hypothesis (PHL). The study disaggregates the OECD Environmental Policy Stringency (EPS) index and identifies regime-dependent effects of FDI across different policy types. It is asserted that while non-market-based policies are more effective in E7 countries, market-based instruments have a larger influence on environment in G7 economies. Our paper also acknowledges theoretical limitations of PHV and PHL, including assumptions of industry mobility, and suggests alternative mechanisms such as technology spillovers. Overall, the results emphasize the importance of context-sensitive policy design to ensure that FDI supports environmental sustainability goals.

Keywords: Foreign direct investment; environmental regulation; pollution haven hypothesis; pollution halo hypothesis; ecological footprint; dynamic panel threshold model (search for similar items in EconPapers)
References: Add references at CitEc
Citations:

Downloads: (external link)
http://polek.vse.cz/doi/10.18267/j.polek.1537.html (text/html)
free of charge

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: https://EconPapers.repec.org/RePEc:prg:jnlpol:v:preprint:id:1537

Ordering information: This journal article can be ordered from
Redakce Politické ekonomie, Vysoká škola ekonomická, nám. W. Churchilla 4, 130 67 Praha 3
http://polek.vse.cz

DOI: 10.18267/j.polek.1537

Access Statistics for this article

Politická ekonomie is currently edited by Jiřina Bulisová

More articles in Politická ekonomie from Prague University of Economics and Business Contact information at EDIRC.
Bibliographic data for series maintained by Stanislav Vojir ().