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Comparative Environmental Regulation and Foreign Investment Inflows: Is China a Pollution Haven?

Maoliang Bu (), ChinTe Lin and Shuwen Zhai

A chapter in Globalization and the Environment of China, 2014, vol. 14, pp 1-20 from Emerald Publishing Ltd

Abstract: Abstract This paper investigates how relative environmental regulation influences the flow of foreign direct investment (FDI), and thereby assesses the pollution haven hypothesis (PHH). In this field, conflicting results exist, partly due to the mere consideration of absolute environmental regulation or the inadequate consideration of endogeneity. Concerning these, we study China’s inward FDI from 26 developed countries and 12 developing countries over 1996–2009, and collect four different environmental regulation indicators at relative values of CO2, SO2, PM10, and an environmental regulation index. Using an instrumental variable approach, we find strong PHH evidence no matter for the subsample of FDI from developed countries or the one from developing countries. Moreover, we show how such results can be masked if failing to consider the endogeneity.

Keywords: Pollution haven hypothesis; endogeneity; comparative environmental regulation; inward FDI; China; F18; Q53; Q56 (search for similar items in EconPapers)
Date: 2014
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