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Remove or redistribute: re-examining the pollution haven hypothesis from ambient regions

Published online by Cambridge University Press:  25 July 2022

Rong Ma  and
Xiaojun Shi Open the ORCID record for Xiaojun Shi [Opens in a new window]
Rong Ma
Affiliation:
School of Economics and Management, Beihang University, Beijing, P. R. China
Xiaojun Shi*
Affiliation:
China Financial Policy Research Center School of Finance, Renmin University of China, Beijing, P. R. China
*
*Corresponding author. E-mail: sxjstein@126.com
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Abstract

This paper re-examines the pollution haven hypothesis (PHH) by taking environmental regulation in ambient regions as a critical determinant concurrent with own regulation. Exploiting the Two Control Zones policy in China as a quasi-natural experiment, we find that both the curbing effect of the local environmental regulation and the spillover effect of ambient regions affect high-polluting foreign direct investment (FDI) location. Moreover, reallocated FDI results in redistributing instead of reducing pollutant emissions. Our evidence enriched by spatial spillover primarily supports the PHH in the context of China. It suggests a national-wide coordinated environmental policy with a unified goal performs better than separately implementing stringent regulations in highly polluted areas.

Keywords

foreign direct investmentenvironmental regulationspillover effectpollution haven hypothesis

JEL classification

R11: Regional Economic Activity: Growth, Development, Environmental Issues, and Changes F21: International Investment • Long-Term Capital Movements Q53: Air Pollution • Water Pollution • Noise • Hazardous Waste • Solid Waste • Recycling
Type
Research Article
Information
Environment and Development Economics , Volume 28 , Issue 1 , February 2023 , pp. 47 - 67
Copyright
Copyright © The Author(s), 2022. Published by Cambridge University Press

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