Pollution haven hypothesis revisited: A comparison of the BRICS and MINT countries based on VECM approach

Abstract

The aim of this study is to investigate the existence of pollution haven hypothesis (PHH) and test the casual relationship between inward foreign direct investment (FDI) and environmental pollutions, as well as other potential influencing factors of environmental performance. To this end, a panel vector error correction model (VECM) and panel co-integration test is conducted for two country groups - the BRICS (i.e., Brazil, Russia, India, China, and South Africa) and the MINT (i.e., Mexico, Indonesia, Nigeria, and Turkey) - during 1982–2014. Empirical results illustrate a bidirectional and positive causality between FDI inflows and GDP per capita for both groups, implying a virtuous circle of FDI-growth nexus. More importantly, both the BRICS and MINT countries illustrate bidirectional and negative causality between FDI inflows and environmental pressures (i.e., per capita energy consumption for BRICS and per capita carbon emissions for MINT). Such findings indicate the pollution haven hypothesis does not stand in this case. In addition, it is also found that the opening degree of trade can be promoted by FDI inflows, which has rarely been deeply analyzed in prior studies. Concluding remarks and policy suggestions are proposed in the last section.