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Are foreign investors attracted to weak environmental regulations Evaluating the evidence from China (English)

One of the most contentious debates today is whether pollution-intensive industries from rich countries relocate to poor countries with weaker environmental standards, turning them into pollution havens. Empirical studies to date show little evidence to support the pollution haven hypothesis, but suffer potentially from omitted variable bias, specification, and measurement errors. The authors estimate the strength of pollution-haven behavior by examining the location choices of equity joint venture (EJV) projects in China. They derive a location choice model from a theoretical framework that incorporates the firm's production and abatement decision, agglomeration, and factor abundance. The authors estimate conditional logit and nested logit models using new data sets containing information on a sample of EJV projects, effective environmental levies on water pollution, and estimates of Chinese pollution-intensity for 3-digit ISIC (International Standard Industrial Classification) industries. Results from 2,886 manufacturing joint venture projects from 1993-96 show that EJVs from all source countries go into provinces with high concentrations of foreign investment, relatively abundant stocks of skilled workers, concentrations of potential local suppliers, special incentives, and less state ownership. Environmental stringency does affect location choice, but not as expected. Low environmental levies are a significant attraction only for joint ventures in highly-polluting industries with partners from Hong Kong, Macao, and Taiwan (China). In contrast, joint ventures with partners from OECD sources are not attracted by low environmental levies, regardless of the pollution intensity of the industry. The authors discuss the likely role of technological differences in explaining these results.

Details

  • Author

    Dean, Judith M. Lovely, Mary E. Wang,Hua

  • Document Date

    2005/02/01

  • Document Type

    Policy Research Working Paper

  • Report Number

    WPS3505

  • Volume No

    1

  • Total Volume(s)

    1

  • Country

    China,

  • Region

    East Asia and Pacific,

  • Disclosure Date

    2010/07/01

  • Doc Name

    Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China

  • Keywords

    constant elasticity of substitution form;trade and the environment;pollution levy;Canadian Journal of Economics;paper and paper products;equity joint venture;pollution intensity;emission tax rate;nested logit model;local service provider;water pollution levy;consumption per capita;water pollution control;effective tax rate;water pollution intensity;development research group;local environmental authority;special economic zone;industrial pollution intensity;air quality regulation;pollution abatement cost;trade and investment;unit of output;foreign investment flow;access to information;Type of Investment;secondary education level;commitment to liberalization;foreign exchange regime;distribution of investment;length of road;pollution levy system;fixed capital investment;environment and development;foreign direct investment;per capita income;concentration of pollution;organic water pollution;chemical oxygen demand;total variable costs;real growth rate;unit of pollution;abatement of emission;water pollution charge;air pollution emission;pollution control technology;extraction of mineral;junior secondary level;joint venture partner;estimation of equation;maximum likelihood estimation;average abatement cost;unit cost function;final goods producers;air pollution levy;proposals for reform;fee for wastewater;local market condition;air pollutant concentration;volume of water;senior secondary education;pollution tax;environmental regulation;state ownership;high pollution;profit function;industrial country;skilled labor;advanced technology;special incentives;factor price;effective water;price index;fixed effect;discharge intensity;waste water;environmental standard;pollution fee;pollution havens;production function;source country;pollution regulation;discharge standard;industrial enterprise;cleaner technology;regulatory stringency;logit analysis;real income;environmental levies;firm location;production technology;primary level;incentive program;labor productivity;coastal provinces;empirical study;raw material;Natural Resources;factor share;production parameters;measurement error;abatement efficiency;coastal city;0 hypothesis;telecommunications infrastructure;inland waterway;income growth;regulatory standard;urban economics;water levy;high ratio;land area;rural transportation infrastructure;industrial concentration;high polluter;enforcement capacity;local regulators;foreign equity;inland region;emission standard;abatement activity;stringent standards;plant location;manufacturing industry;transnational corporation;previous work;alternative measure;bargaining power;dirty projects;popular myth;employment research;fair trade;regional science;vertical multinational;particulate pollution;firm profitability;production process;dynamic effect;econometric analysis;econometric estimation;public good;classification code;negative relationship;cumulative value;noise pollution;air polluters;regional enforcement;economic relation;project datum;Capital Inflows;environmental performance;tax subsidy;industry concentration;provincial consumption;sulfur dioxide;radioactive waste;southern coast;air emission;investment inflow;pollution source;environmental institution;water polluters;positive coefficient;comparative advantage;flue dust;government inspection;preferential policies;historical data;internal consistency;telephone coverage;comparative economics;leather good;factor supply;real value;large enterprise;provincial water;environmental treaty;excess pollution;domestic enterprise;sensitivity analysis;hold equity;industry group;gradual opening;manufactured products;petroleum refining;scientific instrument;domestic supplier;labor supply;summary data;wage data;labor mobility;elastic demand;local income;market size;econometric method;foreign investor;industrial sector;geographic proximity;abatement technology;monopolistic competition;Agricultural Technology;econometric study;effective service;transport cost;net profit;choice model;quality requirement

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Citation

Dean, Judith M. Lovely, Mary E. Wang,Hua

Are foreign investors attracted to weak environmental regulations Evaluating the evidence from China (English). Policy Research working paper series ; no. WPS 3505 Washington, D.C. : World Bank Group. http://documents.worldbank.org/curated/en/586931468746695378/Are-foreign-investors-attracted-to-weak-environmental-regulations-Evaluating-the-evidence-from-China