Do Stringent Environmental Regulations Attract Foreign Direct Investment in Developing Countries? Evidence on the “Race to the Top” from Cross-Country Panel Data

Yeseul Kim, Dong Eun Rhee

Research output: Contribution to journalArticlepeer-review

10 Citations (Scopus)

Abstract

It is widely believed that environmental regulations in a developing country increase abatement costs for firms and, in turn, make the country a less attractive investment avenue for multinational firms from advanced economies. Using panel data of 120 developing countries from 2000 to 2014, this study empirically investigates whether stringent environmental regulations deter foreign direct investment (FDI) in developing countries. The empirical results are the exact opposite of the pollution haven effect, namely, stringent environmental regulations significantly attract FDI, a circumstance that causes a “race to the top.” The results are robust when tested against various specifications.

Original languageEnglish
Pages (from-to)2796-2808
Number of pages13
JournalEmerging Markets Finance and Trade
Volume55
Issue number12
DOIs
Publication statusPublished - 2019 Sep 26

Keywords

  • economic development
  • environmental regulation
  • foreign direct investment
  • governance

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance(all)

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