Forging a Path to Sustainable Development
Edited by Philip Lawn
The assertion that countries with relatively weak environmental regulations will increasingly specialise in pollution-intensive production has become the subject of a rapidly growing body of literature. Known as the pollution-haven hypothesis (PHH), the argument is often tested by examining the impact of environmental regulations on patterns of foreign direct investment (FDI) (see, for example, List and Co, 2000; Xing and Kolstad, 2002). However, the literature contains very few investigations of the reverse relationship – that is, the possible effects of FDI on environmental regulations. The only exception, to our knowledge, is Cole et al. (2006). This appears to be an important omission by the PHH literature since evidence suggests that foreign firms frequently lobby and bribe host-country governments in order to influence policy to their advantage. For example, Desbordes and Vauday (2007) show that foreign firms gain substantial regulatory advantages from their political influence in 48 developing countries (see also Hellman et al., 2000; James and Ramstetter, 2005; Kennedy, 2005; Gawande et al., 2006). The sheer scale of FDI – in 2004,world FDI flows were US$648 billion, with the estimated stock of FDI equal to US$9 trillion (UNCTAD, 2005) – suggests that the potential lobbying power of foreign firms is significant, particularly in those countries most reliant on inward FDI.
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