Improving the environment begins at home: Revisiting the links between FDI and environment

This article revisits the debate over whether FDI inflows are detrimental or beneficial for the host country's environment by examining the effects of FDI originating from developed and developing countries on the overall environmental quality of 76 countries over the 2002-2012 period. The environmental performance index has been employed as the key explanatory variable in the fixed effects estimation for the empirical analysis of three groups of countries. Our results suggest that FDI originating from developed countries improves the overall environmental performance of the lowand lower middle-income and high-middle income host countries. Whereas, FDI from the developing countries is harmful to the environmental performance of the lowand lower-middle-income host countries. We conclude that it is not the policy environment of the host country, but that of the source country that determines the positive/adverse effects of FDI on the environmental performance of a host country. This important distinction should be made while designing policies to tackle the adverse environmental impact of FDI inflows. Therefore, adversely affected countries should implement stricter environmental standards on FDI coming from developing countries. (C) 2020 Elsevier Ltd. All rights reserved.

Automated summary

This article examines the impact of foreign direct investment (FDI) from developed and developing countries on the environmental quality of 76 countries over a 10-year period. The results show that FDI from developed countries improves environmental performance in host countries, while FDI from developing countries has a negative impact. This highlights the importance of policies in the source country in determining the environmental effects of FDI.