New publication “Environmental effects of foreign direct investment in India: pollution haven or pollution halo?”
The question of whether foreign direct investment (FDI) has positive or negative effects on the home and host countries is more relevant than ever in times of growing protectionism. With respect to the environmental impact of FDI, the pollution haven hypothesis argues that multinational corporations often transfer polluting activities to countries with less stringent environmental regulations. Supporters of the contrasting pollution halo hypothesis point to potential positive environmental effects of FDI through the import of less polluting technologies.
In the study “Environmental effects of foreign direct investment in India: pollution haven or pollution halo?” Professor Dr. Dirk Holtbrügge and Nikhila Raghavan analyze the causal relationship between FDI and environmental degradation in India. We use panel data of the most polluting industries between 2005 and 2021 and conduct a Granger causality test. Different effects are found for different industries. Pollution haven effects prevail in the metallurgy and chemicals sectors. On the contrary, no pollution haven effect is observed in the textile and leather sector. An important policy implication would be to promote the technique effect through increasing the absorptive capacity of local firms and achieving positive environmental spillovers.
The study has just been accepted for publication in Critical Perspectives on International Business and can be accessed here.