Empirical Tests of the Pollution Haven Hypothesis When Environmental Regulation is Endogenous
Daniel L. Millimet,Jayjit Roy +1 more
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In this article, the authors circumvent the lack of a traditional instrument within a model incorporating geographic spillovers utilizing three novel identification strategies, and consistently find evidence of environmental regulation being endogenous, a negative impact of own environmental regulation on inbound FDI in pollution-intensive sectors, particularly when measured by employment, and larger effects of environmental regulations once endogeneity is addressed.Abstract:
The validity of existing empirical tests of the Pollution Haven Hypothesis (PHH) is constantly under scrutiny due to two shortcomings. First, the issues of unobserved heterogeneity and measurement error in environmental regulation are typically ignored due to the lack of a credible, traditional instrumental variable. Second, while the recent literature has emphasized the importance of geographic spillovers in determining the location choice of foreign investment, such spatial effects have yet to be adequately incorporated into empirical tests of the PHH. As a result, the impact of environmental regulations on trade patterns and the location decisions of multinational enterprises remains unclear. In this paper, we circumvent the lack of a traditional instrument within a model incorporating geographic spillovers utilizing three novel identification strategies. Using state-level panel data on inbound U.S. FDI, relative abatement costs, and other determinants of FDI, we consistently find (i) evidence of environmental regulation being endogenous, (ii) a negative impact of own environmental regulation on inbound FDI in pollution-intensive sectors, particularly when measured by employment, and (iii) larger effects of environmental regulation once endogeneity is addressed. Neighboring environmental regulation is not found to be an important determinant of FDI.read more
Citations
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Does environmental regulation drive away inbound foreign direct investment? Evidence from a quasi-natural experiment in China
TL;DR: In this paper, the authors investigated whether environmental regulation affects inbound foreign direct investment and found that tougher environmental regulation leads to less FDI in countries with better environmental protections than China.
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Environmental policy and exports: : Evidence from Chinese cities
Laura Hering,Sandra Poncet +1 more
TL;DR: In this article, the authors assess the effectiveness of an environmental policy in China that introduced stricter regulations on sulfur dioxide (SO2) emissions in targeted cities, and identify the causal effect of this policy on exports.
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The impacts of environmental regulations on competitiveness
TL;DR: In this article, the authors review the empirical literature on the impacts of environmental regulations on firms' competitiveness as measured by trade, industry location, employment, productivity, and in-state productivity.
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Environmental regulation and firm exports: Evidence from the eleventh Five-Year Plan in China
Xinzheng Shi,Zhufeng Xu +1 more
TL;DR: In this paper, the authors estimate the impact of environmental regulation on firm exports by combining time variations, cross-province variations in policy intensity, and variations in pollution intensity across industries.
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Environmental regulation and foreign direct investment: Evidence from South Korea
TL;DR: In this article, the authors examined how environmental regulation shapes the pattern of foreign direct investment (FDI) and assessed the pollution haven hypothesis, and found strong evidence that polluting industries tend to invest more in countries with laxer environmental regulations in terms of both the amount of investment (intensive margin) and the number of new foreign affiliates (extensive margin).
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