Skip to main content
SpringerLink
Log in

Foreign Direct Investments and Environmental Policies: A Meta-Analysis

  • Chapter
  • First Online:
Book cover FDI, Technology and Innovation

  • 576 Accesses

Abstract

This study carries a meta-analysis of papers related to foreign direct investment (FDI) and environmental policy. The results firstly suggest that the use of government expenditure on environmental-related measures gives the highest probability of finding evidence for the pollution haven hypothesis (PHH). Secondly, it emerges that policies related to environmental suitability and FDI should be based on a top-down approach at country level instead of bottom-up strategies. Finally, we find that research papers that used new plant establishment as a proxy of FDI are more likely to support PHH as compared to those used the stock definition. The results are encouraging enough to be referred to in the context of designing suitable climate negotiation policies where increasing externalities are generated as pollutions from FDI. From the systemic quantitative review using meta-analysis, we propose a carbon tax at both regional and local scale, which will increase global welfare and address concerns related to sustainability.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info
Hardcover Book
USD 109.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Notes

  1. 1.

    The “Porter hypothesis” states that stringent environmental policies encourage producers to innovate and create new environment-friendly technologies and to become net exporters of these new technologies. This is derived from the concept of offsets whether in the form of product or process offsets. Although stringent environmental laws may increase compliance costs, the benefits of environment-friendly, innovative techniques can offset the cost of compliance (Mihci et al. 2005).

  2. 2.

    Relationship between environmental regulations and trade flow among economies is analysed by using meta-analysis in the former study. Whereas, the latter uses a similar approach with 11 studies and analyse relationship between environmental regulations and firm definition (new) for the USA.

  3. 3.

    See, Rosenberger and Loomis (2000), Nelson and Kennedy (2009) for detail.

  4. 4.

    Based on the multiple estimates from single study, precision of meta-analysis may not be arrived at due to the reason that change in the variance will create a comparative relation across study.

  5. 5.

    Meta-analysis studies in environmental economics that have used this approach include Brons et al. (2005) and Van Houtven et al. (2007).

  6. 6.

    Forum for Global Knowledge Sharing (Knowledge Forum) is a specialised, interdisciplinary global forum. It deals with science, technology and economy interface. It aims at providing a platform for scholars belonging to different institutions, universities, countries and disciplines to interact, exchange their research findings and undertake joint research studies. It is designed for persons who have been contributing to R&D and publishing their’ research findings in professional journals. Detail of this forum can be found at http://fgks.in.

References

  • Blackman, A., & Wu, X. (1998). Foreign direct investment in China’s power sector: Trends, benefits and barriers. Discussion Paper 98-50. Washington D.C. Resources for the Future.

    Google Scholar 

  • Boyd, J. H., & Smith, B. D. (1992). Intermediation and equilibrium allocation of investment capital: Implication for economic development. Journal of Monetary Economics, 30, 409–432.

    Article  Google Scholar 

  • Brons, M., Nijkamp, P., Pels, E., & Rietveld, P. (2005). A meta-analysis of the price elasticity of gasoline demand: A SUR approach. Energy Economics, 30, 2105–2122.

    Article  Google Scholar 

  • Cole, M. A., & Fredriksson, P. G. (2009). Institutionalized pollution havens. Ecological Economics, 68(4), 1239–1256.

    Article  Google Scholar 

  • Copeland, B. R., & Taylor M. S. (1994, August). North-South trade and the environment. Quarterly Journal of Economics, 109(3), 755–787.

    Google Scholar 

  • Fredriksson, P. G., List, J. A., & Millimet, D. A. (2003). Bureaucratic corruption, environmental policy and inbound US FDI: Theory and evidence. Journal of Public Economics, 87(2), 1407–1430.

    Article  Google Scholar 

  • Friedman, J., Gerlowski, D. A., & Silberman, J. (1992). What attracts foreign multinational cooperations? Evidence from branch plant location in the United States. Journal of Regional Science, 32, 403–418.

    Article  Google Scholar 

  • Grossman, G. M., & Krueger, A. B. (1995). Economic growth and the environment. The Quarterly Journal of Economics, 110, 353–377.

    Article  Google Scholar 

  • Lipsey, M. W., & Wilson, D. B. (2001). Practical meta-analysis. Thousand Oaks, CA: Sage Publications.

    Google Scholar 

  • List, J. A. (2001). US county-level determinants of inbound FDI: Evidence from a two-step modified count data model. International Journal of Industrial Organization, 19(6), 953–973.

    Article  Google Scholar 

  • Mihci, H., Cagatay, S., & Koska, O. (2005). The impact of environmental stringency on the foreign direct investments of the OECD countries. International Journal of Environmental Assessment Policy and Management, 7(4), 679–703.

    Article  Google Scholar 

  • Nelson, J. P., & Kennedy, P. E. (2009). The use (and abuse) of meta-analysis in environmental and natural resource economics: An assessment. Environmental & Resource Economics, 42(3), 345–377.

    Article  Google Scholar 

  • Omri, A., & Kahouli, B. (2014). The nexus between foreign investment, domestic capital and economic growth: Empirical evidence from the MENA region. Research in Economics, 68, 257–263.

    Article  Google Scholar 

  • Palmer, K., Oates, W. E., & Portney, P. R. (1995). Tightening environmental standards: The benefit-cost or the no-cost paradigm. Journal of Economic Perspective, 9(4), 119–132.

    Article  Google Scholar 

  • Patnaik, U., Sahu, S. K. (2017). The trade-offs between GHGs emissions, income inequality and productivity. Research Papers, Forum for Global Knowledge Sharing.

    Google Scholar 

  • Porter, M. (1991). America’s green strategy. Scientific American, 264(4), 168.

    Article  Google Scholar 

  • Romer, P. (1993). Idea gaps and object gaps in economic development. Journal of Monetary Economics, 32, 543–573.

    Article  Google Scholar 

  • Rosenberger, R. S., & Loomis, J. B. (2000). Panel stratification in meta-analysis of economic studies: An investigation of its effects in the recreation valuation literature. Journal of Agricultural and Applied Economics, 32(1), 131–149.

    Google Scholar 

  • Stern, D. I. (2004). The rise and fall of the environmental Kuznets curve. World Development, 32, 1419–1439.

    Article  Google Scholar 

  • Van Houtven, G., Powers, J., & Pattanayak, S. K. (2007). Valuing water quality improvements in the United States using meta-analysis: Is the glass half-full or half-empty for national policy analysis? Resource and Energy Economics, 29, 206–228.

    Article  Google Scholar 

  • Wagner, U. J., & Timmins, C. (2009). Agglomeration effects in foreign direct investment and the pollution haven hypothesis. Environmental & Resource Economics, 43(2), 231–256.

    Article  Google Scholar 

Download references

Acknowledgements

This is a modified and updated version of our earlier paper presented in the seminar on “FDI: Issues and Policies” during 24 February 2018 hosted by the Centre for Policy Studies, IIT, Bombay. We would like to thank Forum for Global Knowledge Sharing (Knowledge Forum) for accepting our paper for the seminar and participants for constructive comments and suggestions during the presentation. We would like to thank Prof. K. L. Krishna, Prof. N. S. Siddharthan and Prof. K. Narayanan for their specific comments and suggestions that helped us in modifying the paper in its current form. Usual disclaimer applies.

Author information

Authors and Affiliations

  1. Department of Humanities and Social Sciences, Indian Institute of Technology Madras, Chennai, Tamil Nadu, 600036, India

    Santosh Kumar Sahu

  2. School of Management and Labour Studies, Centre for Labour Studies, Tata Institute of Social Sciences, Mumbai, 400088, India

    Unmesh Patnaik

Authors
  1. Santosh Kumar Sahu
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Unmesh Patnaik
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Santosh Kumar Sahu .

Editor information

Editors and Affiliations

  1. Madras School of Economics, Chennai, Tamil Nadu, India

    N. S. Siddharthan

  2. Department of Humanities and Social Sciences, Indian Institute of Technology Bombay, Mumbai, Maharashtra, India

    K. Narayanan

Appendix: Select Studies for Meta Analysis

Appendix: Select Studies for Meta Analysis

  1. 1.

    Alfaro, L., & Charlton, A. (2009). Intra-industry foreign direct investment. American Economic Review, 99, 2096–2119.

  2. 2.

    Aller, C., Ductor, L., & Herrerias, M. J. (2015). The world trade network and the environment. Energy Economics, 52, 55–68.

  3. 3.

    Azzimonti, M. (2016). The politics of FDI expropriation. NBER Working Paper No. 22705.

  4. 4.

    Blackman, A., & Wu, X. (1998). Foreign direct investment in China’s power sector: Trends, benefits and barriers. Discussion Paper 98-50. Washington D.C. Resources for the Future.

  5. 5.

    Cole, M. A., & Fredriksson, P. G. (2009). Institutionalized pollution havens. Ecological Economics, 68(4), 1239–1256.

  6. 6.

    Cole, M. A., & Elliott, R. J. R. (2005). FDI and the capital intensity of “dirty” sectors: A missing piece of the pollution haven puzzle. Review of Development Economics, 9(4), 530–548.

  7. 7.

    Copeland, B. R., & Taylor, M. S. (1994, August). North-south trade and the environment. Quarterly Journal of Economics, 109(3), 755–787.

  8. 8.

    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), 1–13.

  9. 9.

    Di, W. (2007). Pollution abatement cost savings and FDI inflows to polluting sectors in China. Environment and Development Economics, 12(6): 775–798.

  10. 10.

    Elliott, R. J. R., & Shimamoto, K. (2008). Are ASEAN countries havens for Japanese pollution-intensive industry? World Economy, 31(2), 236–254.

  11. 11.

    Eskeland, G. S., & Harrison, A. E. (2003). Moving to greener pastures? Multinationals and the pollution haven hypothesis. Journal of Development Economics, 70(1), 1–23.

  12. 12.

    Fredriksson, P. G., List, J. A., & Millimet, D. A. (2003). Bureaucratic corruption, environmental policy and inbound US FDI: Theory and evidence. Journal of Public Economics, 87(2), 1407–1430.

  13. 13.

    Friedman, J., Gerlowski, D. A., & Silberman, J. (1992). What attracts foreign multinational cooperations? Evidence from branch plant location in the United States. Journal of Regional Science, 32, 403–418.

  14. 14.

    Grossman, G. M., & Krueger, A. B. (1995). Economic growth and the environment. The Quarterly Journal of Economics, 110, 353–377.

  15. 15.

    Javorcik, B. S., & Wei, S. (2004). Pollution havens and foreign direct investment: Dirty secret or popular myth? Contributions to Economic Analysis and Policy, 3(2), 1244–1244.

  16. 16.

    Keller, W., & Levinson, A. (2002). Environmental regulations and FDI inflows to U.S. states. Review of Economics and Statistics, 84(4), 691–703.

  17. 17.

    Khan, M. E., & Yoshino, Y. (2004). Testing for pollution havens inside and outside of regional trading blocs. The B.E. Journal of Economic Analysis & Policy, 4(2), 1–30.

  18. 18.

    Kirkpatrick, C., & Shimamoto, K. (2008). The effect of environmental regulation on the locational choice of Japanese foreign direct investments. Applied Economics, 30(11), 1399–1409.

  19. 19.

    List, J. A. (2001). US county-level determinants of inbound FDI: Evidence from a two-step modified count data model. International Journal of Industrial Organization, 19(6), 953–973.

  20. 20.

    List, J. A. (2001). US county-level determinants of inbound FDI: Evidence from a two-step modified count data model. International Journal of Industrial Organization, 19(6), 953–973.

  21. 21.

    Liu, H., Liu, W., Fan, X., & Liu, Z. (2015). Carbon emissions embodied in value added chains in China. Journal of Cleaner Production, 103, 362–370.

  22. 22.

    MacDermott, R. (2009). A panel study of the pollution-haven hypothesis. Global Economy Journal, 9(1), Art. 2.

  23. 23.

    Mihci, H., Cagatay, S., & Koska, O. (2005). The impact of environmental stringency on the foreign direct investments of the OECD countries. International Journal of Environmental Assessment Policy and Management, 7(4), 679–703.

  24. 24.

    Patnaik, U., & Sahu, S. K. (2018). Foreign direct investment and business cycle co-movement: evidence from Asian countries. In: N. S. Siddharthan & K. Narayanan (Eds.), Globalisation of technology. Springer.

  25. 25.

    Stern, D. I. (2004). The rise and fall of the environmental Kuznets curve. World Development, 32, 1419–1439.

  26. 26.

    Tole, L., & Koop, G. (2011). Do environmental regulations affect the location decisions of multinational gold mining firms? Journal of Economic Geography, 11(1), 151–177.

  27. 27.

    Wagner, U. J., & Timmins, C. (2009). Agglomeration effects in foreign direct investment and the pollution haven hypothesis. Environmental and Resource Economics, 43(2), 231–256.

  28. 28.

    Waldkirch, A., & Gopinathm, M. (2008). Pollution control and foreign direct investment in Mexico: an industry-level analysis. Environmental and Resource Economics, 41(3): 289–313.

  29. 29.

    Xing, Y., & Kolstad, C. (2002). Do lax environmental regulations attract foreign investment? Environmental and Resource Economics, 21(1), 1–22.

Rights and permissions

Reprints and permissions

Copyright information

© 2020 Springer Nature Singapore Pte Ltd.

About this chapter

Check for updates. Verify currency and authenticity via CrossMark

Cite this chapter

Sahu, S.K., Patnaik, U. (2020). Foreign Direct Investments and Environmental Policies: A Meta-Analysis. In: Siddharthan, N., Narayanan, K. (eds) FDI, Technology and Innovation. Springer, Singapore. https://doi.org/10.1007/978-981-15-3611-3_9

Download citation

Publish with us

Policies and ethics

Search

Navigation