Pollution Haven and Corruption Paradise

Abstract

In this paper, we propose a new perspective to analyze the impact of institutions, environmental standards, and globalization on relocations of polluting rms in countries with lax environmental regulation (called pollution havens). Via a simple theoretical extension from the Economic Geography literature, we characterize the main features of pollution havens: a good market access to high-income countries and corruption opportunities. Using structural and reduced-form estimations, we analyse these determinants by exploiting a unique database on the number of European aliates located abroad. A 1% increase in access to the European market from a pollution haven fosters relocation there by 0.1%. We also nd that corruption in these countries lowers environmental standards, which strongly attract polluting rms: a 1% increase in this indirect eect of corruption fuels relocation by 0.28%. We test the economic signicance of these empirical ndings via simulations. The protection of the European market (e.g., a carbon tax on imports) to stop relocations to pollution havens must be high (a decrease of the European market for Morocco and Tunisia equivalent to 13%) not to say prohibitive (31% for China).Keywords: Multinational rms; Environmental Regulation; Europe; Corruption; Market Access, Trade.JEL: F12;Q5;Q53 * Corresponding author: fabien.candau@univ-pau.fr † We thank Simone Bertoli, Antoine Bouët, Pierre-Philippe Combes, Matthieu Crozet, José de Sousa, CarlGaigné, Michaël Goujon, Jacques Le Cacheux, Serge Rey, Frédéric Robert-Nicoud, François-Charles Wol for their attentive reading and comments. We also thank seminar and conference participants at CERDI, ETSG, U. Geneva, U. Toulon.

The influence of corruption on environmental sustainability in the developing economies of Southern Africa

“…The influence of government expenditures (administrative service, investment development and safeguard governance) on total factor productivity possess only one corruption threshold. Candau and Dienesch (2017) International European-controlled enterprises 2007–2010 Bilateral trade; Corruption Index; Inflation; Environmental Regulation; GDP; Fixed Effects Regressions Corruption reduces environmental standards Biswas et al. (2012) 100 countries 1999–2005 Sulfur Emissions; GDP; Corruption index; T; Energy Efficiency; U; P; Shadow Economy Fixed Effects Regressions A shadow economy and level of emissions are largely influenced by the level of corruption.…”

“…In this regard, there is greater empirical literature that has established the reciprocal influence of corruption and the natural environment ( Akhbari and Nejati, 2019 ; Sinha et al., 2019 ; Wang et al., 2020 ; Candau and Dienesch, 2017 ). As such, evidence supports that corruption is one of the determining variables which impacts the procedure of natural environment preservation and lessening this cause has much influence on the rate of green economic development along with sustainability.…”

The Impact of Foreign Direct Investment on Environmental Pollution in China: Corruption Matters

“…Therefore, if corruption is neglected, the impact of FDI on the environment will be erroneously estimated, and the corresponding environment protection policies will fail to achieve the desired results. To the best of the authors’ knowledge, Candau and Dienesch’s [ 69 ] is the only previous study that investigated this issue, and this study did not take into consideration the spatial factor in the environmental pollution in different regions. Wind direction and water currents may make the environment of one region susceptible to the pollution and emissions of the neighbor regions, and the geographic concentration of FDI intensifies the spatial autocorrelation of pollution [ 11 , 70 , 71 ].…”

The Double-Edged Sword of Urbanization and Its Nexus with Eco-Efficiency in China

“…Barrell and Pain [75] considered that FDI can bring significant technological spillover effects to the host country, while Copeland and Taylor [76] believe that FDI does not bring technological advances, but makes the host countries a "pollution sanctuary" for multinational companies. We selected the degree of openness as the fourth control variable, which was measured as the proportion of foreign direct investment in GDP; this expressed the degree of foreign trade, and tested whether the "pollution paradise" hypothesis exists in China [77]. The data originated from the China Statistical Yearbook.…”