Moving to Greener Pastures? Multinationals and the Pollution-Haven Hypothesis

Abstract

Eskeland and Harrison find almost no evidence that investors in developing countries are fleeing environmental costs at home. Instead, the evidence suggests that foreign-owned plants in four developing countries are less polluting than comparable domestic plants.

Are multinationals flocking to pollution havens in developing countries? Using data from four developing countries (Côte d`Ivoire, Mexico, Morocco, and Venezuela), Eskeland and Harrison examine the pattern of foreign investment. They find almost no evidence that foreign investors are concentrated in dirty sectors.

They also examine the behavior of multinationals doing business in these four countries, testing whether there is any tendency for foreign firms to pollute more or less than their host-country counterparts. To do this, they use consumption of energy and dirty fuels as a proxy for pollution intensity. They find that foreign plants in these four developing countries are significantly more energy-efficient and use cleaner types of energy than their domestic counterparts.

Eskeland and Harrison conclude with an analysis of U.S. outbound investment between 1982 and 1994. They reject the hypothesis that the pattern of U.S. foreign investment is skewed toward industries in which the cost of pollution abatement is high.

This paper - a product of the Public Economics Division, Policy Research Department - is part of a larger effort in the department to analyze environmental policy problems. The study was funded by the Bank's Research Support Budget under the research project Pollution and the Choice of Economic Policy Instruments in Developing Countries (RPO 676-78).