Does Environmental Policy Stringency impact the flow of FDI? A study in Indian Manufacturing sector in relation with OECD countries
Journal Title: International Journal of Interdisciplinary and Multidisciplinary Studies (IJIMS) - Year 2017, Vol 4, Issue 3
Abstract
The pollution haven hypothesis postulates how industrial nations seek to set up factories in countries with cheapest resources and lowest environmental regulation cost. FDI in polluting industries flows from countries with stringent environmental regulations to those with slack regulations. With this background this paper tries to assess the validity of the pollution haven hypothesis employing graphical and panel data analysis. Assuming that manufacturing sector is the most polluting sector we examine the relationship between environmental policy stringency and percentage share of manufacturing FDI in India for the period 2003 to 2015 and also of five OECD countries (United States, United Kingdom, South Korea, Japan and Germany) where environmental policies are highly stringent. Study found that in Germany, Japan and South Korea a growing strictness in environmental policy is followed by a falling share in manufacturing FDI inflow. In our next effort, to assess the relationship between the policy stringency differences across countries and flow of polluting FDI, by using panel data analysis we find significant econometrical evidence that changing differences in environmental policy stringency has been influencing the inflow of polluting FDI in India.
Authors and Affiliations
Karuna Phukan
Keywords
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