The lesser of two evils: an empirical investigation of foreign direct investment-pollution tradeoff

Abstract

This article investigates the relationship between Foreign Direct Investment (FDI) and pollution measured by carbon dioxide (CO2) emissions. The results suggest that while lax environmental regulations might attract FDI, the foreign companies utilize less polluting technology as compared to local firms in low-income countries. Thus, FDI does not necessarily increase pollution levels in the host countries. The findings, therefore, simultaneously support the pollution haven and the pollution halo hypotheses.