Foreign Direct Investment and environmental degradation in Latin America: A Panel data analysis
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2023-06-23
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en
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The debate about the effects of foreign investments on environmental quality have gained more attention recently as the effects of different policy choices on environmental quality have gained more attention in society and within policy debates. This article adds to the debate about whether foreign direct investments have a positive or negative effect on environmental quality by examining sixteen countries in the Latin American region, which are separated in two equal groups by income, using panel data from 2000-2010. Specifically, this study tests the validity of the Pollution Haven Hypothesis (PHH) and the Environmental Kuznets Curve (EKC) hypothesis for this region. The Environmental Performance Index (EPI) is used a proxy for environmental quality and gives a broad view of the environmental status of countries. By using Fixed and Random effects models, this research doesn’t find unequivocal evidence that validates the PHH and EKC hypothesis. This study concludes that different aspects of the EPI react in opposite directions when foreign investments increase and therefore presents the importance of the definition of environmental quality when doing research at this relationship. Next to that, a rise in GDP and human capital mitigates environmental degradation. However, for foreign investments to have a positive effect on environmental quality, policies that focus on attracting clean and sustainable investments are needed. A final conclusion this research provides is that less developed countries react fiercer to a change on several indicators which stresses the importance of well-designed policies for environmental sustainability.
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Faculteit der Managementwetenschappen