Foreign direct investment and air pollution in Asian countries: does institutional quality matter?

ABSTRACT

This paper empirically studies how foreign direct investment (FDI) affects air pollution, and how this effect depends on institutional quality. By using a panel data for 19 developing Asian countries over the period of 2002–2015, we find that FDI inflows initially increase air pollution in Asia, and the institutional quality improvement helps reduce this effect until the institutional quality achieves a threshold, then beyond this threshold, FDI reduces air pollution. The findings indicate that the pollution haven hypothesis and the pollution halo hypothesis are not contradictory when the institutional quality is taken into consideration.

KEYWORDS:

• Air pollution
• FDI
• institutional quality

JEL CLASSIFICATION:

• F21
• P48
• Q53

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ See more at: https://asia.nikkei.com/Economy/Two-thirds-of-all-air-pollution-deaths-occur-in-Asia.

² including Voice and Accountability, Political Stability and Absence of Violence, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption.

³ including Bangladesh, Bhutan, Cambodia, China, India, Indonesia, Kazakhstan, Kyrgyzstan, Laos, Malaysia, Maldives, Mongolia, Myanmar, Nepal, Pakistan, Philippines, Sri Lanka, Thailand, and Vietnam.