FDI and Pollution – a Granger Causality Test using Panel Data

Nottingham University Business School
Journal of International Development (Impact Factor: 0.88). 04/2005; 17(3). DOI: 10.1002/jid.1196
Source: RePEc


This study reports the findings of Granger causality tests on the relationship between FDI and pollution across 112 countries over 15-28 years. Our results uncover alternative causality relationships between the two variables depending on a host country's level of development.

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    • "In this study, we employed FDI inflows as a measure of financial development. According to the pollution haven hypothesis, weak environmental regulation in a host country may attract inward FDI by profit-driven companies eager to circumvent costly regulatory compliance in their home countries (Jensen, 1996; Hoffmannet al., 2005; Dean et al., 2009). Second, according to the pollution-halo hypothesis, in applying a universal environmental standard, multinationals engaging in FDI will tend to spread its greener technology to their counterparts in the host country (Birdsall and Wheeler, 1993; Zarsky,1999; Sandborke and Metha 2002).Finally, a scale effect would arise to the extent that multinational FDI operation would significantly contribute to a host nation's industrial output and in turn the overall pollution level (Jian and Rencheng, 2002). "
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    ABSTRACT: The effects of climate change are being felt on all continents of the world and these impacts are predicted to intensify in the coming decades. Unmitigated climate change poses great risks to human health, global food security, and economic development and to the natural world on which much of our prosperity depends. Society therefore needs to take measures to adapt to these unavoidable impacts while taking action to cut the greenhouse gas emissions that are contributing to climate change. This study analyzes the interactions that may exist between the total energy consumption, FDI, economic growth, and the emission of CO2 in the BRICS countries, using the co-integration tests and panel Granger causality in panel. The results show significantly that there is a co-integration relationship between CO2 emissions and economic variables. The results also indicate the existence of a unidirectional causality from CO2 to the independent variables. These results can help decision makers in these countries to understand and grasp the complexity of this phenomenon; a better understanding of this phenomenon will probably better guide future decisions to deal with this threat that weighs more heavily on the scene world politics.
    Procedia Economics and Finance 10/2015; 26(2015):114–125. DOI:10.1016/S2212-5671(15)00890-4
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    • "Furthermore, the study also suggested that energy-intensive industries partake of FDI more due to the relaxed environmental laws. Hoffmann et al. (2005a) tested the direction of causality between FDI and environmental pollution in low-, middle-, and high-income countries globally. The following results reject the PHH: (1) the unidirectional causality runs from FDI to energy emissions in middle-income countries, (2) a Granger causality between FDI and CO 2 emissions is observed in low-income countries, and (3) both variables exert neutral effects in high-income countries. "
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    ABSTRACT: Under a multivariate framework, this paper aims to investigate the nonlinear correlation between foreign direct investment and environmental degradation for high-, middle-, and low-income countries with economic growth and energy consumption as additional determinants of environmental degradation. All variables were found to be nonstationary and cointegrated based on recent panel data unit-root tests and cointegration techniques. On applying fully modified ordinary least squares (FMOLS), the long-run results suggest the presence of an environmental Kuznets curve. In turn, foreign direct investment increases environmental degradation, thus confirming the pollution haven hypothesis (PHH). Moreover, the bidirectional causality between CO2 emissions and foreign direct investment is observed globally. The findings are sensitive to different income groups and regional analyses. In particular, these empirical findings aid sound economic policymaking for improving environmental quality and sustainable economic development.
    Energy Economics 08/2015; 51:275-287. · 2.54 Impact Factor
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    • "In this type of studies, the evidence of a pollution haven a¤ect is quasi non-existent (Ratnayake and Widewald (1998), Smarzynska and Wei (2001), Eskeland and Harrison (2003), Mihci et al. (2005), Koop and Tole (2008)), although recent studies …nd a signi…cant PHE (Sparatenu (2007), Dam and Scholtens (2008)). In order to validate the pollution haven e¤ect, Ho¤mann et al. (2005) study whether FDI / pollution Granger cause pollution / FDI using new techniques in Granger causality with short time series and panel data. Their results suggest that a pollution haven e¤ect is more likely to happen in low-income host countries. "
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    ABSTRACT: This paper investigates if differences in environmental regulations can influence FDI flows in a multi-country setting taking into account the so-called "third-country" effects. We examine bilateral FDI flows using a new extended OECD investment database which covers great number of host countries and a long sample period (1981-2005). The findings based on a spatial gravity-like model are largely plausible across specifications and confirm the existence of a negative relationship between FDI and environmental stringency, once we correct for endogeneity and spatial dependence. The evidence of a positive "third-country" effect for FDI suggests the prevalence of complex FDI from developed to developing countries. The spatial structure of the model allows also to underline the possible existence of competition in environmental standards between countries to attract FDI.
    SSRN Electronic Journal 05/2008; DOI:10.2139/ssrn.1292705
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