Do Environmental Regulations Effect FDI Decisions? The Pollution Haven Hypothesis Revisited

Haeyeon Yoon () and Almas Heshmati
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Haeyeon Yoon: Sogang University

No 10897, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: In an attempt to verify the pollution haven hypothesis, this study investigates the impact of environmental regulations on foreign direct investment (FDI). We use Korean outward FDI data covering the manufacturing sector for 2009-15. The study not only considers the stringency but also the enforcement of environmental regulations when measuring the degree of the host country's environmental regulations. Since the pollution haven's effects indicate moving the polluting production stages from the home country to other (host) countries, we distinguish between investments in the 'production' part from that in the non-production part using location information about the host country. The main results of the estimation of a FDI model show that the stricter the regulations in host countries in Asia the lower the FDI both intensively and extensively to those countries. This supports the prevalence of the effects of pollution havens. However, before we separate the FDI into the production part, the effect of environmental regulations on FDI is hindered by the FDI in the non-production part. The results indicate that environmental regulations are determinants of FDI in the production part, while environmental regulations do not have a significant effect on FDI decisions when the entire FDI is considered.

Keywords: foreign direct investment; environmental regulation; pollution haven hypothesis (search for similar items in EconPapers)
JEL-codes: F23 K32 L51 Q56 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2017-07
New Economics Papers: this item is included in nep-ene, nep-env, nep-int, nep-law and nep-sea
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Citations: View citations in EconPapers (7)

Published - published in: Science and Public Policy, 2021, 48 (1), 122 - 131

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https://docs.iza.org/dp10897.pdf (application/pdf)

Related works:
Journal Article: Do environmental regulations affect FDI decisions? The pollution haven hypothesis revisited (2021)
Working Paper: Do Environmental Regulations Effect FDI decisions? The Pollution Haven Hypothesis Revisited (2017)
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