Handbook on Trade and the Environment
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Handbook on Trade and the Environment

Edited by Kevin P. Gallagher

In this comprehensive reference work, Kevin Gallagher has compiled a fresh and broad-ranging collection of expert voices commenting on the interdisciplinary field of trade and the environment. For over two decades policymakers and scholars have been struggling to understand the relationship between international trade in a globalizing world and its effects on the natural environment. The authors in this Handbook provide the tools to do just that.
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Chapter 11: Foreign Direct Investment and Clean Technology Leapfrogging in China

Kelly Sims Gallagher


Kelly Sims Gallagher It has often been assumed that foreign direct investment (FDI) in developing countries brings with it more advanced technologies from the home country. Embedded in this assumption is the notion that foreign investors also bring cleaner technologies with them, thereby allowing the developing countries to ‘leapfrog’ to the most advanced environmental technologies available. Contrary to this notion is the pollution haven hypothesis, wherein large multinational companies move to developing countries because of their weaker environmental standards. Some scholars and policy-makers have taken the wrong lesson from the empirical evidence regarding the pollution-haven hypothesis. As the chapter by Copeland in this volume (Chapter 4) demonstrates, most multinational companies do not move to developing countries because of their weaker environmental standards. Some policy-makers have interpreted these findings to mean that one not need formulate policies to address the environmental impact of foreign investment. From a scholarly perspective, though, the pollution-haven hypothesis is strictly a ‘firm location’ theory, and makes no pretense about explaining the behavior of foreign firms once they have already invested in or moved to a developing country. This chapter looks mainly at the environmental behavior of multinational corporations investing in China, specifically taking the case of the US automotive firms as they formed joint ventures with Chinese counterparts. The US Big Three automakers clearly did not move to China in order to exploit its weaker environmental laws but instead they invested in order to serve China’s exploding domestic automobile market. They saw China as the...

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