FDI and negative environmental externalities in Asia

This study researches the relationship between FDI and negative environmental externalities in 13 Asian countries in the period 2003 to 2012. The pollution haven hypothesis, the pollution halo hypothesis, and the EKC hypothesis are addressed. The analyses are performed using the random effects model and the pooled OLS model as robustness check. The main analyses are performed using Total FDI as main explanatory variable and CO2 emissions and N2O emissions as dependent variables. Additional analysis are performed using sectoral FDI - i.e. construction FDI, manufacturing FDI, resource FDI, and service FDI - as main explanatory variables. The results provide no base for a clear conclusion regarding the existence of the pollution haven hypothesis or the pollution halo hypothesis. Though, the results indicate that the relationship between FDI and negative environmental externalities is an inverted U-shaped curve. Therefore, support for the EKC hypothesis is found in this study.