Foreign direct investments and environmental policies: A meta-analysis

Abstract

This study carries a meta-analysis of papers related to foreign direct investment (FDI) and environmental policy. The results firstly suggest that the use of government expenditure on environmental-related measures gives the highest probability of finding evidence for the pollution haven hypothesis (PHH). Secondly, it emerges that policies related to environmental suitability and FDI should be based on a top-down approach at country level instead of bottom-up strategies. Finally, we find that research papers that used new plant establishment as a proxy of FDI are more likely to support PHH as compared to those used the stock definition. The results are encouraging enough to be referred to in the context of designing suitable climate negotiation policies where increasing externalities are generated as pollutions from FDI. From the systemic quantitative review using meta-analysis, we propose a carbon tax at both regional and local scale, which will increase global welfare and address concerns related to sustainability.