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. 2024 Mar 31;10(8):e28657.
doi: 10.1016/j.heliyon.2024.e28657. eCollection 2024 Apr 30.

From foreign direct investment to environmental regulations: Does a feedback effect ever exist?

Loan Thi-Hong Van  1 , Duc Hong Vo  2 , Nam Thanh Vu  2 , Chi Minh Ho  2 , Thang Cong Nguyen  2
Affiliations

From foreign direct investment to environmental regulations: Does a feedback effect ever exist?

Loan Thi-Hong Van et al. Heliyon. .

Abstract

This study revisits the feedback effect from foreign direct investments (FDI) on environmental regulations under the presence of the host country's political structure. Such a relationship may encounter the endogeneity problem due to the omitted variable bias and reverse causality. As such, the two-step system generalized method of moments is employed. Using data from 21 OECD countries from 1990 to 2019, we confirm that FDI flows influence environmental regulations, but such an effect is conditional on the host country's political constraints. Specifically, FDI increases (decreases) the stringency of environmental regulations if domestic political constraints are sufficiently high (low). Understanding the mechanisms of how FDI flows can affect environmental regulations allows countries to revise their policies to attract more FDI flows to support economic growth while simultaneously minimising their negative effects on the environment.

Keywords: Environmental regulations; Foreign direction investment; Long-run relationship; OECD countries; Political constraint index.

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Conflict of interest statement

The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

Figures

Fig. 1
Fig. 1
The marginal effects of FDI on EPS at different levels of POLV.
Fig. 2
Fig. 2
The marginal effects of FDI on EPS at different levels of POLIII.
Fig. A1
Fig. A1
FDI inward flows in 2021 (billion US dollars).
Fig. A2
Fig. A2
Environment-related taxes (% GDP).
See this image and copyright information in PMC

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