Is There a Pollution Haven Effect? Evidence from a Natural Experiment in China

32 Pages Posted: 14 May 2012

See all articles by Yi Lu

Yi Lu

National University of Singapore (NUS) - Department of Economics

Mingqin Wu

South China Normal University

Linhui Yu

The University of Hong Kong - School of Business

Date Written: May 1, 2012

Abstract

In this paper, we investigate whether there is a pollution haven effect, specifically, the effect of environmental regulations on firm location. Our identification uses the Two Control Zones (TCZ) policy implemented by the Chinese government in 1998. The difference-in-differences (DID) estimation shows that cities with tougher environmental regulations attract less foreign direct investment (FDI). Specifically, being listed as a TCZ city causes the amount of FDI to drop by 41%. Our results are robust to various robustness checks on the validity of the DID estimation and other estimation concerns.

Keywords: pollution haven effect, difference-in-differences estimation, two control zones, natural experiment

JEL Classification: R11, L25, D22

Suggested Citation

Lu, Yi and Wu, Mingqin and Yu, Linhui, Is There a Pollution Haven Effect? Evidence from a Natural Experiment in China (May 1, 2012). Available at SSRN: https://ssrn.com/abstract=2057475 or http://dx.doi.org/10.2139/ssrn.2057475

Yi Lu (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

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HOME PAGE: http://ylu6.weebly.com

Mingqin Wu

South China Normal University ( email )

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Tianhe District
Guangzhou, 510631, Guangdong 510642
China

Linhui Yu

The University of Hong Kong - School of Business ( email )

Meng Wah Complex
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Hong Kong
China

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