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 journalArticle

1 Citation (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
JournalEmerging Markets Finance and Trade
DOIs
Publication statusAccepted/In press - 2018 Jan 1

Fingerprint

Environmental regulation
Panel data
Foreign direct investment
Developing countries
Multinational firms
Empirical results
Pollution havens
Abatement costs

Keywords

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

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance(all)

Cite this

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