Moving to greener pastures? Multinationals and the pollution haven hypothesis

Abstract

This paper presents evidence on whether multinationals are flocking to developing country "pollution havens". Although we find some evidence that foreign investors locate in sectors with high levels of air pollution, the evidence is weak at best. We then examine whether foreign firms pollute less than their peers. We find that foreign plants are significantly more energy efficient and use cleaner types of energy. We conclude with an analysis of U.S. outbound investment. Although the pattern of U.S. foreign investment is skewed towards industries with high costs of pollution abatement, the results are not robust across specifications. ABSTRACT This paper presents evidence on whether multinationals are flocking to developing country "pollution havens". Although we find some evidence that foreign investors locate in sectors with high levels of air pollution, the evidence is weak at best. We then examine whether foreign firms pollute less than their peers. We find that foreign plants are significantly more energy efficient and use cleaner types of energy. We conclude with an analysis of US outbound investment. Although the pattern of US foreign investment is skewed towards industries with high costs of pollution abatement, the results are not robust across specifications.

China’s Energy Intensity, Determinants and Spatial Effects

“…The result shows that FDI has a significant and negative effect on energy intensity. Eskeland and Harrison [37] reveal that foreign firms are significantly more energy efficient in four developing countries because of using more energy-efficient technology and cleaner sources of energy. Cole [38] and Peterson [39] examine the impact of FDI on the diffusion of technologies affects energy intensity.…”

How MNEs respond to environmental regulation: integrating the Porter hypothesis and the pollution haven hypothesis

“…Moreover, MNEs from advanced countries are usually larger than firms in host developing countries; this aspect implies that the MNEs can embark the risk of green investments and that the impact of resulting eco-innovation on the economy can occur at a larger scale than uni-national firms or SMEs (Blomström and Kokko 1998). Indeed, foreign-owned plants have been found to be more energy efficient and use cleaner types of energy than local firms (Eskeland and Harrison 2003); this latter trait might be due also to the fact that once the MNE has developed certain technological and management standards, it is very likely that they are applied in each of its foreign plants. Also, because MNEs operate in multiple countries, they have developed capabilities to transfer knowledge from home to foreign countries, and vice versa (Dasgupta et al 2002); accordingly, if a certain technology or organizational practice has been revealed successful at home, the MNE is able to easily transfer these assets to foreign subsidiaries.…”

“…Eskeland and Harrison (2003) test their formal model on a panel data of FDI from the US and France to Mexico, Morocco, Côte d'Ivoire and Venezuela. They do not find systematic evidence of an effect of pollution abatement costs on FDI, even by considering different measures of pollution emissions.…”

“…In addition, the impact of MNE eco-innovation on the economy can occur at a large scale (Blomström and Kokko 1998) and foreign-owned plants have been found to be greener than local firms (Eskeland and Harrison 2003). Moreover, MNEs often follow social and environmental responsible corporate strategies (Kolk and Van Tulder 2010).…”

“…Also, in comparison to uni-national firms, MNEs have the capabilities to diffuse green technologies from home to foreign countries, and vice versa (Dasgupta et al 2002). At the same time, MNEs are among the greater greenhouse gas emitters (UNCTAD 2010) and they may escape to pollution havens (Eskeland and Harrison 2003). The empirical evidence is mixed and the ambiguous results might be due to a small importance of host ER in comparison to other location determinants and to methodological issues (Kalamova and Johnstone 2011).…”