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The pollution haven hypothesis posits that, when large industrialized nations seek to set up factories or offices abroad, they will often look for the cheapest option in terms of resources and labor that offers the land and material access they require. However, this often comes at the cost of environmentally unsound practices. Developing nations with cheap resources and labor tend to have less stringent environmental regulations, and conversely, nations with stricter environmental regulations become more expensive for companies as a result of the costs associated with meeting these standards. Thus, companies that choose to physically invest in foreign countries tend to (re)locate to the countries with the lowest environmental standards or weakest enforcement.
Foreign direct investment and the environment involves international businesses and their interactions and impact on the natural world. These interactions can be observed through the stringency applied to foreign direct investment policy and the responsiveness of capital or labor incentive for investment inflows. The laws and regulations created by a country that focuses on environmental regimes can directly impact the levels of competition involving foreign direct investment they are exposed to. Fiscal and financial incentives stemming from ecological motivators, such as carbon taxation, are methods used based on the desired outcome within a country in order to attract foreign direct investment.
References
- ↑ America’s Green Strategy, Michael Porter, 1991. Scientific American 264: 168.
- ↑ The Porter Hypothesis Revisited. A Literature Review of Theoretical Model and Empirical Test., Marcus Wagner, Lüneburg: Centre for Sustainability Management, 2003 open access publication
- ↑ Chemicals Regulation and the Porter Hypothesis: A Critical Review of the New European Chemicals Regulation, Torsten Frohwein, Bernd Hansjürgens, Journal of Business Chemistry January, 2005 open access publication
- ↑ The Porter Hypothesis at 20. Can Environmental Regulation Enhance Innovation and Competitiveness?, Stefan Ambec, Mark A. Cohen, Stewart Elgie, and Paul Lanoie. RFF DP 11-01, January 2011 open access publication
- ↑ Ibid.
- ↑ Do Environmental Policies Matter for Productivity Growth? Insights from New Cross-Country Measures of Environmental Policies, Silvia Albrizio, Enrico Botta, Tomasz Koźluk, Vera Zipperer. OECD Economics Department Working Papers 1176, OECD Publishing, 2014 ().
