Abstract
The pollution haven hypothesis has suggested that developed-country multinational enterprises (DMNEs) offshore their polluting activities to developing countries in an attempt to circumvent the stringent environmental protection regulations in their home markets. What remains unclear is why the host developing-country governments permit the above-average pollution caused by foreign subsidiaries. From a power-dependence perspective, we hypothesize that when the host developing-country governments exhibit dependence on advanced resources from developed countries, DMNE subsidiaries exert power (or influence) over the governments in regulatory discretion within the legal boundary. The unbalanced power relation grants DMNE subsidiaries the leeway to pollute more than their peers. By combining the pollution haven hypothesis with the power-dependence theory, this study highlights the heterogeneity within the local developing countries in environmental arbitrage in international business.
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