FDI-pollution Nexus: The Role of Corruption

Abstract

This study aims to re-investigate the Pollution Haven Hypothesis (PHH) by analyzing the role of corruption. We argue that the impact of foreign direct investment (FDI) on pollution in the host country is contingent on the level of corruption of the host country. By using a sample of 70 developing countries, the findings reveal that FDI do not directly influence carbon dioxide (CO2) emission. However, further investigation using threshold regression analysis uncovers that PHH only exist in countries with high level of corruption. In other words, corrupted countries absorb"dirty" FDI and therefore generate more pollution than less corrupted countries.