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An empirical test of the pollution haven hypothesis for China: intra-host country analysis

An empirical test of the pollution haven hypothesis for China: intra-host country analysis Purpose– This paper aims to, under the framework of the pollution haven hypothesis (PHH), test the theory that foreign direct investment (FDI) creates an intra-host country pollution haven in developing nations by studying the contemporary case of China. Design/methodology/approach– This empirical analysis has used a panel dataset of 30 provinces that was analyzed for the period of 1997-2011. An Oaxaca decomposition was also implemented to examine the effects of environmental stringency on regional pollution. Findings– The estimates indicate that openness to FDI generally appears to be good for the environment. The results of estimation show that the western region of China has developed a potential “comparative advantage” in pollution-intensive industries, thanks to the strong incentive of economic expansion. However, further estimates concerning the location decisions of FDI suggest that the providers of FDI still prefer to locate in the coastal regions of China, where a tighter environmental regulation policy has been imposed. The findings suggest that the better infrastructure and technology spillover of environmental policy-making might be more attractive to FDI than comparatively weak environmental stringency. Originality/value– This study applies a model advanced in previous theoretical literature which divides the effects of trade into the categories of scale, technique and composition. It also contributes to the understanding of the PHH in the context of intra-host country analysis. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Nankai Business Review International Emerald Publishing

An empirical test of the pollution haven hypothesis for China: intra-host country analysis

Nankai Business Review International , Volume 6 (2): 22 – Jun 1, 2015

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2040-8749
DOI
10.1108/NBRI-06-2014-0029
Publisher site
See Article on Publisher Site

Abstract

Purpose– This paper aims to, under the framework of the pollution haven hypothesis (PHH), test the theory that foreign direct investment (FDI) creates an intra-host country pollution haven in developing nations by studying the contemporary case of China. Design/methodology/approach– This empirical analysis has used a panel dataset of 30 provinces that was analyzed for the period of 1997-2011. An Oaxaca decomposition was also implemented to examine the effects of environmental stringency on regional pollution. Findings– The estimates indicate that openness to FDI generally appears to be good for the environment. The results of estimation show that the western region of China has developed a potential “comparative advantage” in pollution-intensive industries, thanks to the strong incentive of economic expansion. However, further estimates concerning the location decisions of FDI suggest that the providers of FDI still prefer to locate in the coastal regions of China, where a tighter environmental regulation policy has been imposed. The findings suggest that the better infrastructure and technology spillover of environmental policy-making might be more attractive to FDI than comparatively weak environmental stringency. Originality/value– This study applies a model advanced in previous theoretical literature which divides the effects of trade into the categories of scale, technique and composition. It also contributes to the understanding of the PHH in the context of intra-host country analysis.

Journal

Nankai Business Review InternationalEmerald Publishing

Published: Jun 1, 2015

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