Re-assessing Pollution Haven Hypothesis (PHH): corruption, FDI and CO2 emission

Abstract

In recent years, studies on the impact of international trade on environment been extensively debated. Stiff international trade market becomes a push factor for the firms to engage in race to bottom activity and therefore, firms reallocate their production plant overseas in the form of foreign direct investment (FDI). The reallocation of the production plants of firms into developing countries has causing the environment of the host countries depleting. The environmentalist claimed this scenario as Pollution Haven Hypothesis (PHH). In this study, System Generalized Method of Moments (S-GMM) is employed to address the gap in the literature with the focus on the role of corruption in PHH. With the focus of developing countries during 2002 to 2018, our result finds that PHH valid in a more corrupted country. Countries with higher level of corruption are attracting polluted FDI than less corrupted countries. The present study is imperative as it provides an opportunity to advance knowledge on the significant theoretical insights into the relationships between corruption and PHH in developing countries.