Advertisement

Does industrial relocation alleviate environmental pollution? A mathematical economics analysis

  • Mingquan LiEmail author
  • Qi Wang
Article

Abstract

Industrial relocation and its environmental impact attract widespread attention. We incorporated environmental elements into the decision-making framework of industrial relocation and developed a mathematical economics model. With this model, we investigated the impact of environmental regulation on industrial relocation; we also compared the environmental impact after relocation with that before relocation. We found that regulation can affect relocation, but prerequisites exist. Some factors such as pollutant generation factor, pollutant treatment cost factor, and relocation cost are indispensable components of the prerequisites. We also found that impacts of regulation on relocations of pollution-intensive industries (PIIs) and clean industries are different, and pollutant generation factor and relocation cost are two critical factors leading to this difference. This result indicates that environmental regulation does not necessarily lead to a relocation of PIIs. Total amount and intensity of pollutant emissions increase after relocation, and the extent of increase is positively correlated with the regulation in the home country and negatively correlated with that in the host country. This result reveals that industrial relocation alleviates home country’s environmental pollution in the sacrifice of host country’s environment through emissions leakage. This research yields essential considerations in policy making of industrial relocation.

Keywords

Industrial relocation Environmental regulation Environmental impact Mathematical economics analysis Emissions leakage 

Notes

Supplementary material

10668_2019_403_MOESM1_ESM.docx (483 kb)
Supplementary material 1 (DOCX 483 kb)

References

  1. Aichele, R., & Felbermayr, G. (2015). Kyoto and carbon leakage: An empirical analysis of the carbon content of bilateral trade. Review of Economics and Statistics, 97, 104–115.CrossRefGoogle Scholar
  2. Beladi, H., Chao, C.-C., & Frasca, R. (1999). Foreign investment and environmental regulations in LDCs. Resource and Energy Economics, 21, 191–199.CrossRefGoogle Scholar
  3. Birdsall, N., & Wheeler, D. (1993). Trade policy and industrial pollution in Latin America: Where are the pollution havens? The Journal of Environment & Development, 2, 137–149.CrossRefGoogle Scholar
  4. Brunnermeier, S. B., & Cohen, M. A. (2003). Determinants of environmental innovation in US manufacturing industries. Journal of Environmental Economics and Management, 45, 278–293.CrossRefGoogle Scholar
  5. Cai, X., Lu, Y., Wu, M., & Yu, L. (2016). Does environmental regulation drive away inbound foreign direct investment? Evidence from a quasi-natural experiment in China. Journal of Development Economics, 123, 73–85.CrossRefGoogle Scholar
  6. Celik, S., & Orbay, B. Z. (2011). Location choice under trade and environmental policies. Economic Modelling, 28, 1710–1715.CrossRefGoogle Scholar
  7. Chung, S. (2014). Environmental regulation and foreign direct investment: Evidence from South Korea. Journal of Development Economics, 108, 222–236.CrossRefGoogle Scholar
  8. Cole, M. A., & Elliott, R. J. (2005). FDI and the capital intensity of “dirty” sectors: A missing piece of the pollution haven puzzle. Review of Development Economics, 9, 530–548.CrossRefGoogle Scholar
  9. Copeland, B. R., & Taylor, M. S. (2013). Trade and the environment: Theory and evidence. Princeton: Princeton University Press.Google Scholar
  10. Dam, L., & Scholtens, B. (2008). Environmental regulation and MNEs location: Does CSR matter? Ecological Economics, 67, 55–65.CrossRefGoogle Scholar
  11. Dam, L., & Scholtens, B. (2012). The curse of the haven: The impact of multinational enterprise on environmental regulation. Ecological Economics, 78, 148–156.CrossRefGoogle Scholar
  12. de Castro, P. G., Fernandes, E. A., & Campos, A. C. (2013). The determinants of foreign direct investment in Brazil and Mexico: An empirical analysis. Procedia Economics and Finance, 5, 231–240.CrossRefGoogle Scholar
  13. De Santis, R. A., & Stähler, F. (2009). Foreign direct investment and environmental taxes. German Economic Review, 10, 115–135.CrossRefGoogle Scholar
  14. Dean, J. M., Lovely, M. E., & Wang, H. (2009). Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China. Journal of Development Economics, 90, 1–13.CrossRefGoogle Scholar
  15. Deng, Y., & Xu, H. (2015). International direct investment and transboundary pollution: An empirical analysis of complex networks. Sustainability, 7, 3933–3957.CrossRefGoogle Scholar
  16. Di, W. (2007). Pollution abatement cost savings and FDI inflows to polluting sectors in China. Environment and Development Economics, 12, 775–798.CrossRefGoogle Scholar
  17. Duerksen, C., & Leonard, H. J. (1980). Environmental regulations and the location of industries: An international perspective. Columbia Journal of World Business, 15, 52–58.Google Scholar
  18. Dufour, C., Lanoie, P., & Patry, M. (1995). Regulation and productivity in the Quebec manufacturing sector. Montreal: CIRANO.Google Scholar
  19. Elliott, R. J., & Zhou, Y. (2013). Environmental regulation induced foreign direct investment. Environmental & Resource Economics, 55, 141–158.CrossRefGoogle Scholar
  20. Fell, H., & Maniloff, P. (2018). Leakage in regional environmental policy: The case of the regional greenhouse gas initiative. Journal of Environmental Economics and Management, 87, 1–23.CrossRefGoogle Scholar
  21. Fredriksson, P. G., List, J. A., & Millimet, D. L. (2003). Bureaucratic corruption, environmental policy and inbound US FDI: Theory and evidence. Journal of Public Economics, 87, 1407–1430.CrossRefGoogle Scholar
  22. Friedman, J., Gerlowski, D. A., & Silberman, J. (1992). What attracts foreign multinational corporations? Evidence from branch plant location in the United States. Journal of Regional Science, 32, 403–418.CrossRefGoogle Scholar
  23. Hanna, R. (2010). US environmental regulation and FDI: Evidence from a panel of US-based multinational firms. American Economic Journal: Applied Economics, 2, 158–189.Google Scholar
  24. Huang, J., Chen, X., Huang, B., & Yang, X. (2017). Economic and environmental impacts of foreign direct investment in China: A spatial spillover analysis. China Economic Review, 45, 289–309.CrossRefGoogle Scholar
  25. Jadhav, P. (2012). Determinants of foreign direct investment in BRICS economies: Analysis of economic, institutional and political factor. Procedia-Social and Behavioral Sciences, 37, 5–14.CrossRefGoogle Scholar
  26. Kamińska, T. (2016). Is the ‘flying geese’ paradigm useful to explain advancement in the European Union by means of FDI phenomenon? Journal of International Studies, 9, 9–24.CrossRefGoogle Scholar
  27. Kellenberg, D. K. (2009). An empirical investigation of the pollution haven effect with strategic environment and trade policy. Journal of International Economics, 78, 242–255.CrossRefGoogle Scholar
  28. Kheder, S. B., & Zugravu, N. (2012). Environmental regulation and French firms location abroad: An economic geography model in an international comparative study. Ecological Economics, 77, 48–61.CrossRefGoogle Scholar
  29. Kim, M. H., & Adilov, N. (2012). The lesser of two evils: An empirical investigation of foreign direct investment-pollution tradeoff. Applied Economics, 44, 2597–2606.CrossRefGoogle Scholar
  30. Lan, J., Kakinaka, M., & Huang, X. (2012). Foreign direct investment, human capital and environmental pollution in China. Environmental & Resource Economics, 51, 255–275.CrossRefGoogle Scholar
  31. Lanoie, P., Patry, M., & Lajeunesse, R. (2008). Environmental regulation and productivity: Testing the porter hypothesis. Journal of Productivity Analysis, 30, 121–128.CrossRefGoogle Scholar
  32. Lee, K.-D., Lee, W., & Kang, K. (2014). Pollution haven with technological externalities arising from foreign direct investment. Environmental & Resource Economics, 57, 1–18.CrossRefGoogle Scholar
  33. Leiter, A. M., Parolini, A., & Winner, H. (2011). Environmental regulation and investment: Evidence from European industry data. Ecological Economics, 70, 759–770.CrossRefGoogle Scholar
  34. Levinson, A. (1996). Environmental regulations and manufacturers’ location choices: Evidence from the Census of Manufactures. Journal of Public Economics, 62, 5–29.CrossRefGoogle Scholar
  35. Li, M., & Wang, Q. (2017). Will technology advances alleviate climate change? Dual effects of technology change on aggregate carbon dioxide emissions. Energy for Sustainable Development, 41, 61–68.CrossRefGoogle Scholar
  36. Lian, T., Ma, T., Cao, J., & Wu, Y. (2016). The effects of environmental regulation on the industrial location of China’s manufacturing. Natural Hazards, 80, 1381–1403.CrossRefGoogle Scholar
  37. Lin, J., et al. (2014). China’s international trade and air pollution in the United States. Proceedings of the National Academy of Sciences, 111, 1736–1741.CrossRefGoogle Scholar
  38. List, J. A., & Co, C. Y. (2000). The effects of environmental regulations on foreign direct investment. Journal of Environmental Economics and Management, 40, 1–20.CrossRefGoogle Scholar
  39. List, J. A., McHone, W. W., & Millimet, D. L. (2003). Effects of air quality regulation on the destination choice of relocating plants. Oxford Economic Papers, 55, 657–678.CrossRefGoogle Scholar
  40. Ljungwall, C., & Linde-Rahr, M. (2005). Environmental policy and the location of foreign direct investment in China. East Asian Bureau of Economic Research, Governance Working Papers.Google Scholar
  41. Low, P., & Yeats, A. (1992). Do ‘dirty’ industries migrate? In P. Low (Ed.), International trade and the environment. World Bank Discussion Paper, 159Google Scholar
  42. McGuire, M. C. (1982). Regulation, factor rewards, and international trade. Journal of Public Economics, 17, 335–354.CrossRefGoogle Scholar
  43. McQuaid, R. W., Leitham, S., & Nelson, J. D. (1996). Accessibility and location decisions in a peripheral region of Europe: A logit analysis. Regional Studies, 30, 579–588.CrossRefGoogle Scholar
  44. Millimet, D. L., & Roy, J. (2016). Empirical tests of the pollution haven hypothesis when environmental regulation is endogenous. Journal of Applied Econometrics, 31, 652–677.CrossRefGoogle Scholar
  45. Mulatu, A. (2017). The structure of UK outbound FDI and environmental regulation. Environmental and Resource Economics, 68, 1–32.CrossRefGoogle Scholar
  46. Munday, M. (1990). Japanese manufacturing investment in Wales. Cardiff: University of Wales Press.Google Scholar
  47. Naughton, H. T. (2014). To shut down or to shift: Multinationals and environmental regulation. Ecological Economics, 102, 113–117.CrossRefGoogle Scholar
  48. Oh, H.-R., et al. (2015). Long-range transport of air pollutants originating in China: A possible major cause of multi-day high-PM10 episodes during cold season in Seoul, Korea. Atmospheric Environment, 109, 23–30.CrossRefGoogle Scholar
  49. Saikawa, E., & Urpelainen, J. (2014). Environmental standards as a strategy of international technology transfer. Environmental Science & Policy, 38, 192–206.CrossRefGoogle Scholar
  50. Shadbegian, R. J., & Gray, W. B. (2005). Pollution abatement expenditures and plant-level productivity: A production function approach. Ecological Economics, 54, 196–208.CrossRefGoogle Scholar
  51. Shen, J., Wei, Y. D., & Yang, Z. (2017). The impact of environmental regulations on the location of pollution-intensive industries in China. Journal of Cleaner Production, 148, 785–794.CrossRefGoogle Scholar
  52. Sun, Q., Tong, W., & Yu, Q. (2002). Determinants of foreign direct investment across China. Journal of International Money and Finance, 21, 79–113.CrossRefGoogle Scholar
  53. Tobey, J. A. (1990). The effects of domestic environmental policies on patterns of world trade: An empirical test. Kyklos, 43, 191–209.CrossRefGoogle Scholar
  54. Wagner, U. J., & Timmins, C. D. (2009). Agglomeration effects in foreign direct investment and the pollution haven hypothesis. Environmental & Resource Economics, 43, 231–256.CrossRefGoogle Scholar
  55. Waldkirch, A., & Gopinath, M. (2008). Pollution control and foreign direct investment in Mexico: An industry-level analysis. Environmental & Resource Economics, 41, 289–313.CrossRefGoogle Scholar
  56. Walter, I. (1978). Environmental attitudes in less developed countries. Resources Policy, 4, 200–204.CrossRefGoogle Scholar
  57. Wu, H., Guo, H., Zhang, B., & Bu, M. (2017). Westward movement of new polluting firms in China: Pollution reduction mandates and location choice. Journal of Comparative Economics, 45, 119–138.CrossRefGoogle Scholar
  58. Wu, A., Li, G., Sun, T., & Liang, Y. (2014). Effects of industrial relocation on Chinese regional economic growth disparities: Based on system dynamics modeling. Chinese Geographical Science, 24, 706–716.CrossRefGoogle Scholar
  59. Xing, Y., & Kolstad, C. D. (2002). Do lax environmental regulations attract foreign investment? Environmental & Resource Economics, 21, 1–22.CrossRefGoogle Scholar
  60. YCELP. (2019). Environmental Performance Index (EPI). https://epi.envirocenter.yale.edu. Accessed 30 May 2019.
  61. Zeng, D.-Z., & Zhao, L. (2009). Pollution havens and industrial agglomeration. Journal of Environmental Economics and Management, 58, 141–153.CrossRefGoogle Scholar
  62. Zheng, D., & Shi, M. (2017). Multiple environmental policies and pollution haven hypothesis: Evidence from China’s polluting industries. Journal of Cleaner Production, 141, 295–304.CrossRefGoogle Scholar

Copyright information

© Springer Nature B.V. 2019

Authors and Affiliations

  1. 1.School of Economics and ManagementBeihang UniversityBeijingChina
  2. 2.College of Environmental Sciences and EngineeringPeking UniversityBeijingChina

Personalised recommendations