Revisiting the Pollution Haven Hypothesis: Green Upgrading of Foreign Investment in Southern Host Countries Through Strategic Environmental Policies
Social Science Research Network (SSRN) , Vol.18 February 2026
Elsevier
2026
In the era of global carbon neutrality goals, developing countries are tightening environmental regulations, reshaping the investment landscape for multinational corporations (MNCs). This paper revisits the Pollution Haven Hypothesis (PHH), challenging the notion that lax regulations alone attract foreign direct investment (FDI). Introducing North-South asymmetries in clean production technologies and environmental damage, we find that stricter environmental policies in the South do not drive away advanced MNCs. Instead, such regulations can attract greener investments, promoting a "green upgrade" of foreign capital structures. Asymmetries also influence strategic interactions between environmental taxes, corporate taxes, and tariffs, enabling Southern countries to protect domestic industries while drawing high-quality, sustainable FDI. This paper provides crucial insights for developing nations on leveraging environmental policies to escape the pollution haven trap and meet carbon neutrality targets, offering a fresh theoretical perspective on the evolving dynamics of FDI and environmental regulation.
- Revisiting the Pollution Haven Hypothesis: Green Upgrading of Foreign Investment in Southern Host Countries Through Strategic Environmental Policies
- Liming Hong - Xiamen University of TechnologySajid Anwar - University of the Sunshine Coast, Queensland, School of Business and Creative IndustriesWei Huang - Shanghai Lixin University of Accounting and FinanceTao Wei - University of South China
- Social Science Research Network (SSRN) , Vol.18 February 2026
- Elsevier
- 2026
- 10.2139/ssrn.6262240
- 1556-5068
- This work was supported by the National Social Science Fund of China[No.22BJL026] ; Social Science Foundation of Fujian Province, China [FJ2025A004]; National Social Science Fund of China [No.23BJY236]
- School of Business and Creative Industries; Indigenous and Transcultural Research Centre
- English
- 991212979102621
- Preprint
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