Foreign Direct Investment and the Pollution Haven Hypothesis in Indonesia

Abstract

This paper investigates the validity of the pollution haven hypothesis in the context of Foreign Direct Investment (FDI) in Indonesia by determining the correlations between carbon emission and foreign direct investment, gross domestic product, and population size between 1975 and 2009 in that country. Statistical results from Spearman‟s correlation analysis show that CO2 emission has a statistically significant negative relationship with real Gross Domestic Product (GDP), and a statistically significant positive relationship with population size in the Indonesian economy between 1975 and 2009. However, there is a weak and insignificant relationship between CO2 emission and real FDI during this period which indicates weak support for the pollution haven hypothesis because FDI does not appear to be as strong a contributing factor to CO2 emission as the activities of the population in Indonesia.

Trade-Environment Triangle in Indonesia: Ecological Footprint Approach

“…andJaffe et al (2013) stated that environmental regulation is not the only factor that is considered by investors in determining the location of investment.There are other factors that are also taken into consideration, such as cheap and skilled labor and the quality of infrastructure. These findings are in line withShofwan & Fong (2014) in Indonesia. This aspect is different from the overall investment where the estimation results show that the investment significantly reduces the ecological footprint and CO2 emissions in Indonesia in the long term.…”

Hubungan Simultanitas antara Emisi Gas Rumah Kaca dan Industrialisasi di Indonesia Tahun 1990-2019

“…Hasil ini sejalan dengan Pollution Haven Hypothesis yang menyatakan bahwa FDI akan meningkatkan polusi industri dan kerusakan lingkungan di negara penerima karena negara penerima memiliki regulasi lingkungan yang kurang ketat sehingga industri polutif berpindah dari negara maju ke negara tersebut (Terzi & Pata, 2020). Abimanyu (2000) dan Bedner (2010) menyatakan bahwa regulasi dan penegakan hukum yang lemah, kurangnya dukungan pemerintah dalam perencanaan dan penelitian lingkungan yang berkelanjutan, liberalisasi perdagangan, dan desentralisasi di Indonesia memberikan kesan bahwa Indonesia memiliki standar lingkungan yang rendah kepada investor asing (Shofwan & Fong, 2014). Hal tersebut menarik minat investor asing untuk mengembangkan industri polutif di Indonesia melalui FDI.…”