Does Degree of Stringency Matter? Revisiting the Pollution Haven Hypothesis in BRICS Countries

Abstract

This study aims to demonstrate the validity of the Pollution Haven Hypothesis (PHH) for BRICS nations by revealing the empirical relationship between foreign direct investment (FDI), air pollution, and environmental regulations. At the same time, the study objectives are based on the BRICS′ COP26 goals focused on mobilizing climate finance annually. The SDGs agenda for 2030 seeks to implement effective climate change planning and management. However, the study uses the panel data of BRICS countries from 2000 to 2020. This study has used the PMG/PARDL model to empirically test the existence of PHH in BRICS countries. Therefore, the empirical estimates indicate that an increase in FDI increases environmental degradation. Consequently, the findings confirm the existence of PHH in BRICS. This study demonstrates that at low levels of stringency, the likelihood of pollution-intensive FDIs increases with a decrease in severity. Even though strict regulations may lead to higher pollution-intensive foreign direct investment (FDI), this is not always the case at lower levels of law. This implies that the same pollution activity may be economically and socially unsuitable for developed environments but desirable for less advanced environments. These distinctions are the foundation for the emergence of pollution havens. Therefore, environmental policy laxity must be formed to induce FDI flow into the BRICS countries, further implying SDG’s accomplishment. Furthermore, additional stringent regulations might very well result in FDIs with a more significant environmental impact. This suggests that pollution havens are only possible if environmental rules are lax or inconsequential.