Abstract
The first vein of discussion, related to the environmental effects of FDI, is claimed to be one of the research areas where the literature lacks a better and more appropriate scientific understanding (OECD 2002b).
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Notes
- 1.
Although this approach of analysis is often said to be desirable, the difficulties implicitly existing in its performance would impede the achievement of meaningful results. As reported by UNCTAD, there are plenty of studies which have come to the same conclusion in demonstrating that specific industrial activities (such as those related to production in the sectors of chemical and allied, pulp and paper, mining for mineral and iron, cement, glass and ceramics) may result highly pollutant. However, because of data insufficiency, research has failed to prove the existence of precise relations between FDI flows and the potential pollution intensity of these considered industry sectors. Hence, the report highlights that the “net effects” of FDI on the environment depend on a combination of macro and micro aspects. The first can be related to the FDI profile such as, for example, the type of industry sector in which it takes place, and the extent to which it involves pollution-intensive activities. The micro aspects could refer to specific decisions with regard to the management of their production activities and the adoption and diffusion of environmentally sound technologies (UNCTAD 1999: 294–295).
- 2.
For example, some works found a positive relationship between environmental regulation and the growth in the population per-capita income (Dasgupta et al. 2001). Other works verified how many indicators of environmental quality deteriorate at an initial stage of economic growth, but they improve when economic welfare overtakes certain thresholds (Grossman and Krueger 1993a, b, 1995; Selden and Song 1994; Shafik 1994; Shafik and Bandyopadhyay 1992). More recently, an analysis of air and water pollution for a set of 120 countries between 1960 and 2001 observed the existence of the EKC for water only (Gassebner et al. 2011).
- 3.
The achievement of a detailed survey of the EKC literature is certainly not the scope of our discussion. However, it seems the case to highlight that a series of limitations arise to cool the optimistic feeling which may be generated by approaching the view expressed by the EKC issue. As reported by authors who have profoundly characterized this scientific debate, in many countries the “turning point” of the inverted-U curve could be found at quite a high level of their population’s per-capita income, this opening the way to the fear of irreversibility of environmental degradation meanwhile generated (Panayotou 2000, 1997; Opschoor 1995). With regard to this, it has more specifically been observed how an EKC might exist for both local and global pollutants (e.g. Grossman and Krueger 1995; Seldon and Song 1994). In this respect, it must be highlighted, however, that the EKC shows its validity only for some pollutants, for some countries and not all the time (Stern 2004a, b; Munasinghe 1999; Barbier 1997). Generally speaking, it has also been observed that local pollutants respond better than global ones to investigations of the EKC hypothesis in the sense that the turning point of the earlier are lower than the latter (Meers 2000). Finally, some empirical evidence of the linkage between economic growth induced by trade and environmental deterioration exists, but this does not mean the same relationship can be validated for FDI-induced growth (Dessus and Bussolo 1996).
- 4.
More specifically, some of the mentioned studies also refer that in the attempt to offset such degrading situations, MNCs have introduced more environment-friendly technologies and higher standards of environmental protection in comparison to the local firms working in the same sector.
- 5.
It is the case to highlight that, in agreement with some authors, the occurrence of structural changes clearly leads to some shifts in the optimal allocation of resources. However, it is not clear if this implies the fulfillment of ecological sustainability constraints. Hence, the identification of a strict and virtuous relationship between economic efficiency and ecological sustainability cannot be a natural expectation (Common and Perrings 1992).
- 6.
From a geographical point of view, in the past decade the pattern of the FDI dynamic has changed enormously. New world areas have come to the spotlight as host and receiving countries. Shifts in the patterns of bilateral FDI relationships can also now be observed among developed countries, and between developed and emerging economies. The analysis of recent trends shows a significant increase of FDI flows from developing and transition economies and in the South-South relationships (UNCTAD 2007: 19). From a sectorial point of view, it can be appreciated how over the past 25 years FDI has grown notably in absolute terms in the three main economic sectors (primary, manufacturing and services). However, the observation in terms of stock shows the primary (particularly referred to the natural resource sub-sector) and manufacturing quotas have considerably decreased. Meanwhile, a significant shift in favour of the service sector can be appreciated. In terms of FDI stock, in fact, while the primary sector in 2005 represents one tenth of the total, that is a slight decrease with respect to the figure in 1990, the manufacturing sector accounts for 30 % of the total in 2005 against 41 % in 1990. The FDI stock in the service sector performs a significant increase arriving to represent 61 % of the total in 2005 against 49 % in 1990 (UNCTAD 2007: 22).
- 7.
With regard to this, however, a reflection should be made with regard to the different nature of the many activities characterizing the service sector (e.g. the difference between financial and air transport services) and to the different environmental impacts they can generate. This considered, further research is claimed for a better understanding of the wide variety of environmental impacts which can arise from the service sector activities (OECD 2002b).
- 8.
Furthermore, the study by Blömstrom and Kokko (1996) highlights that the presence of multinational firms in a country seems to generate further technological spillover among the supplier industries, which can be beneficial to the environment. In fact, by requesting factor inputs (e.g. raw material, component parts, etc.) with specific quality standards and furnishing supplier firms with appropriate technical aid to achieve the required standards, multinationals can encourage these firms to improve their technological performance. For other aspects, the same study also reports the observation of other beneficial spillovers, which can arise when people and experts previously employed in international firms—especially when they are the subject of significant training programmes—are successively engaged by national and local firms.
- 9.
This type of effect is normally expressed in terms of a ratio between the lost environmental benefits and the expected environmental benefit (Murray 2013).
- 10.
We also make reference to the trade issue, since we are aware of the fact that FDI and trade can be intended as the two faces of the same coin. It is generally recognized that the perception, which has been empirically proven in most cases, that trade and FDI are interlinked in various modes and they are two ways—sometimes alternatives, but increasingly complementary—of servicing foreign markets (ie. Chaisrisawatsuk and Chaisrisawatsuk 2007; Hejazi and Safarian 2001; Baldwin 1994).
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Pazienza, P. (2014). The Environmental Effects of FDI. In: The Relationship Between FDI and the Natural Environment. SpringerBriefs in Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-04301-2_3
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