Economic Globalization and the Environment
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Date
2016-07
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Working Paper
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yes
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Abstract
The authors focus on the standard Factor Endowment Theory (FET) and the Pollution Haven Hypothesis (PHH) for contributing to our understanding of the relationship between economic globalization and the environment. One implication of the theoretical framework that combines both approaches is that inward-investment flows are likely to decrease domestic environmental quality in developing countries. The theory’s main contribution, however, is the ability to distinguish between the FET and the PHH with the interactive effects of trade and inward FDI. Empirically, the authors study the impact of economic globalization in the form of trade openness and FDI inflows on SO₂ emissions in 150 countries between 1971 and 2003. The findings suggest that inward FDI is indeed associated with higher levels of SO₂ emissions in developing states, while increases in trade amplify the negative effects of FDI inflows. This constitutes prima facie evidence in favor of the PHH over the FET.
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ETH Zurich
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Subject
environmental quality; factor endowments; foreign direct investment; pollution haven; SO₂ emissions; trade
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03446 - Bernauer, Thomas / Bernauer, Thomas