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Is There a Pollution Haven Effect? Evidence from a Natural Experiment in China

Yi Lu (), Mingqin Wu and Linhui Yu ()

MPRA Paper from University Library of Munich, Germany

Abstract: In this paper, we investigate whether there is a pollution haven effect, specifically, the effect of environmental regulations on firm location. Our identification uses the Two Control Zones (TCZ) policy implemented by the Chinese government in 1998. The difference-in-differences (DID) estimation shows that cities with tougher environmental regulations attract less foreign direct investment (FDI). Specifically, being listed as a TCZ city causes the amount of FDI to drop by 41%. Our results are robust to various robustness checks on the validity of the DID estimation and other estimation concerns.

Keywords: Pollution haven effect; Difference-in-differences estimation; Two control zones; Natural experiment (search for similar items in EconPapers)
JEL-codes: D21 L25 R11 (search for similar items in EconPapers)
Date: 2012-05
New Economics Papers: this item is included in nep-ene, nep-env, nep-res and nep-tra
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