Foreign direct investment (FDI) accounts for a large part the new international economic activity. Its environmental spillovers are still poorly understood. There are two conflicting hypotheses in the environmental literature: the FDI “halo effect hypothesis” that suggest that FDI benefits the environment and the “pollution haven hypothesis” that suggests that it harms the environment. The goal of this study is to critically examine the analytical framework and the empirical evidence to settle the FDI “halo” vs. “pollution haven” argument in the literature. In the process of this analysis the paper also seeks to answer whether the FDI absorbing sector, industry and level of development of host country matters for the nature and size of the potential spillovers.
|Keywords:||FDI Halo Hypothesis, Pollution Haven Hypothesis, Environmental Kuznets Curve|
Assistant Professor of Economics, Department of Economics, City University of New York Brooklyn College and Asian Institute of Management, Brooklyn, New York, USA