Dean, Judith M.Lovely, Mary E.Wang, Hua2012-03-302012-03-302009Journal of Development Economics03043878https://hdl.handle.net/10986/5603At the center of the pollution haven debate is the claim that foreign investors from industrial countries are attracted to weak environment regulations in developing countries. Some recent location choice studies have found evidence of this attraction, but only for inward FDI in industrial countries. The few studies of inward FDI in developing countries have been hampered by weak measures of environmental stringency and by insufficient data to estimate variation in firm response by pollution intensity. This paper tests for pollution haven behavior by estimating the determinants of location choice for equity joint ventures (EJVs) in China. Beginning with a theoretical framework of firm production and abatement decisions, we derive and estimate a location choice model using data on a sample of EJV projects, Chinese effective levies on water pollution, and Chinese industrial pollution intensity. Results show EJVs in highly-polluting industries funded through Hong Kong, Macao, and Taiwan are attracted by weak environmental standards. In contrast, EJVs funded from non-ethnically Chinese sources are not significantly attracted by weak standards, regardless of the pollution intensity of the industry. These findings are consistent with pollution haven behavior, but not by investors from high income countries and only in industries that are highly polluting. Further investigation into differences in technology between industrial and developing country investors might shed new light on this debate.ENMultinational FirmsInternational Business F230Economic Development: AgricultureNatural ResourcesEnergyEnvironmentOther Primary Products O130Economic Development: Financial MarketsSaving and Capital InvestmentCorporate Finance and Governance O160Socialist Systems and Transitional Economies: Natural ResourcesEnergyEnvironment P280Air PollutionWater PollutionNoiseHazardous WasteSolid WasteRecycling Q530Environmental Economics: Government Policy Q580Other Production and Pricing Analysis R320Journal ArticleWorld Bank