Corporate social responsibility and the pollution haven hypothesis: evidence from multinationals’ investment decision in China

Abstract

This paper tests the pollution haven hypothesis by examining the relationship between environmental regulation and foreign investment with consideration of the role of corporate social responsibility, which has so far been neglected. Using multinationals’ investment data from China, our results in general support the pollution haven hypothesis that less stringent environmental regulation is more attractive for multinationals to invest in China, but high social responsibility can counteract attractiveness of weak environmental regulation.

Keywords:

• pollution haven hypothesis
• corporate social responsibility
• foreign direct investment
• environmental regulation
• China

JEL classification:

• F18
• O53
• Q56

Acknowledgements

The manuscript has been presented at the international workshop of “Foreign Direct Investment and Climate Change: New Research Directions” (Venice, 2011), the staff seminar at Birmingham University (2012) and the 2012 APJAE Symposium on Advances in Studies of the Chinese Economy – Growth, FDI, Trade, Finance, and Intellectual Property Rights (Hong Kong, 2012). We appreciate comments from an anonymous reviewer, Matthew Cole, Judith Dean, Robert Elliott, Belton Fleisher, James Markusen, and other participants. However, all errors remain ours.

Notes

1. Source: http://www.globescan.com/pdf/WaterViews_GlobalWaterPoll_GlobeScan.pdf.

2. Source: “Multinationals Blacklisted for Pollution”, China Daily August 21, 2007.

3. Source: http://www.tex-asia.com/html/news/domestic/2009/8/09810165545JB.html.

4. MEP had 2935 full-time employees in 2011, according to their website: http://gcs.mep.gov.cn/zhxx/201204/t20120424_226666.htm, while, EPA has approximately 17,000 full-time employees and engages many more people on a contractual basis, according to Joseph Kahn and Jim Yardley (August 26, 2007). “As China Roars, Pollution Reaches Deadly Extremes”. The New York Times. (http://www.nytimes.com/2007/08/26/world/asia/26china.html.)

5. The enterprises are all state-owned and non-state owned enterprises above a certain level, which refers to enterprises with annual sales of over 5 million RMB (about US $ 0.8 million).

6. The detailed methodology of the rating is available on the website: http://www.csrhub.com/content/csrhub-ratings-methodology.

7. One anonymous reviewer suggested that employment costs might affect the location choice for FDI. We tried to include the variable of average wage, which is an important indicator for employment costs, in the regression. Unfortunately, it caused a multicollinearity problem with per capita GDP. We had to drop it from the final results.

8. Results are available on request.