Revisiting the Pollution Haven Hypothesis: Analyzing the Interplay Between FDI Inflows, Environmental Policies, and Sustainability in Bangladesh
Abstract
This study investigates the potential existence of the Pollution Haven Hypothesis (PHH) in Bangladesh, examining how lax environmental policies influence FDI inflows and subsequent pollution levels. Using a mixed-methods approach, it combines quantitative analyses—Johansen cointegration, Vector Error Correction Model (VECM), and Granger causality tests—with qualitative insights from 12 Key Informant Interviews (KII). The Johansen test indicates a long-run relationship between CO₂ emissions and FDI, though not statistically robust. VECM results show FDI is shaped by economic and environmental factors, with inflation as a key deterrent. Granger causality reveals FDI significantly impacts GDP per capita and electricity consumption but not CO₂ emissions. Qualitative findings highlight low labour costs, market size, and geopolitical factors as FDI drivers while noting environmental risks in polluting industries. The study’s novelty lies in integrating quantitative and qualitative methods to analyze FDI’s long-run economic and environmental effects in Bangladesh. Limited evidence supports PHH, suggesting weak environmental regulations are not the main FDI attractor. Policy recommendations include strengthening environmental enforcement and promoting cleaner technologies to achieve sustainable industrial growth.
Keywords: pollution haven hypothesis, foreign direct investment, environmental policy.
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