Pollution Haven Hypothesis (Phh) Revisited for the BRICS Economies

Abstract

This study analyzed the reality or otherwise of pollution haven hypothesis in BRICS countries using panel data spanning from 1990 to 2018. The study used net exports and foreign direct investments as measures of economic activity (dependent variables for the two models) and stringency in environmental regulation while other determinants of trade were captured as independent or control variables. The other model that has foreign direct investment as dependent variable also has infrastructure, income and trade openness as control variables. Cointegration, panel least squares and Panel generalized method of moments (PGMM) were used in analyzing the data. A year lag of the dependent variables was included as one of the independent variables of the models to capture dynamism (Blundell and Bond, 1998). The study confirmed the existence of pollution haven hypothesis true for the BRICS countries. The agglomeration effects of FDI and trade were also confirmed by the study among others. The study recommends that governments of BRICS countries must weigh the beneficial impact of trade and FDI against the pollution impact of ‘dirty’ trade and investments before deciding or setting its environmental policy. There is a great need for them to tighten their environmental laws and also strengthened the enforcement agencies so as to make those regulations effective.