Re‐examining the impact of global foreign direct investment (FDI) inflows on haze pollution—considering the moderating mechanism of environmental regulation

Abstract

One important and frequently raised issue about foreign direct investment (FDI) is its potentially environmental consequences. In recent years, as severe haze pollution has broken out worldwide, whether FDI inflows increase PM2.5 spillages in a country has sparked a new round of heated discussion. This study attempts to empirically investigate how FDI affects haze pollution in various countries, by employing a cross-country panel dataset during the period 2010–2017, and further to examine the interactive effect of environmental regulation and FDI in the FDI–pollution nexus. Based on a two-way fixed-effects model with robust standard errors, the estimation results show that FDI inflows significantly lead to an increase in PM2.5 exposure, therefore, confirming the validity of the Pollution Haven Hypothesis. Moreover, environmental regulation generally appears to be ineffective in directly reducing haze pollution but acts as an essential underlying mechanism in the relationship between FDI and haze pollution. Under the moderation of environmental regulation, the positive marginal effect of FDI on PM2.5 continues to decrease until it becomes negative. The findings suggest that countries, especially developing countries and emerging economies should consider a mix of policies to manage its inward FDI to achieve sustainable development in the post-financial crisis era.