Green Havens and Pollution Havens

Abstract

AbstractWe test for pollution haven effects in outward foreign direct investment (FDI) for different sectors using a comprehensive and exhaustive data set for outward FDI from the Netherlands, one of the most environmentally stringent countries and a major source of global FDI. Our evidence suggests that in the sectors, natural resources extraction and refining, construction, retail, food processing, beverages and tobacco, and utilities, a less stringent environmental policy in the host country, significantly attract FDI. What is important for these pollution haven effects is not only regulation but also enforcement of environmental policy. In contrast to earlier results, it is not only footloose industries that display pollution haven effects, but also the traditional pollution‐intensive industries. But for the machines, electronics and automotive and transportation and communication sectors, a more stringent and better enforced environmental policy attracts more FDI as this may help their reputation for sustainable management and CSR. These sectors display green haven effects. These findings have important implications for the sector distribution of FDI in destination countries.