| The role of foreign direct investment (FDI) as a channel of knowledge transfer and on the technological spillovers of know-how in the economy was the primary focus of this study. The key question addressed was whether countries with relatively low environmental standards may attract more foreign capital in environmentally demanding activities resulting in creation of “pollution havens” or do lower environmental standards, which attract large foreign capital inflows, introduce more efficient and less polluting technologies, that promote “pollution halos?”; The first essay describes the dynamic relationship among pollution loadings, pollution abatement effort, and economic development with explicit consideration of FDI-related effects. It demonstrates how foreign direct investment may reduce environmental pollution through higher expenditure on pollution abatement.; The second essay provides an empirical estimation of the relationship between selected pollution loadings and FDI, as well as other independent variables including industry specialization, domestic investment, and institutional variables designed to reflect a country's formal regulatory enactments related to control of pollution loadings and enrollment and compliance with international environmental protocols. With Korean time series data ranging from 1976 through 1997, the estimation results show that increases in FDI may reduce pollution loadings. These findings are comparatively robust for biochemical oxygen demand (BOD), but less so for carbon dioxide (CO2). In the former, both the direct effect and second turning points in pollution loadings were negative and statistically significant. For CO2, the linear effect for FDI was not significant. However, when tested with FDI squared and FDI cubed for first and second turning points, respectively, the coefficient for FDI was found to be significant and negative in the quadratic case, and significant and negative in the cubic. In a similar examination of turning points for CO2, the coefficient for FDI squared was significant with a positive sign in the quadratic, while in the cubic case, coefficients for neither FDI squared nor FDI cubed were significant. Findings were consistent with the research hypothesis that FDI reduces pollution loadings in the case of BOD, but for CO2, only weakly supportive in linear and cubic cases and inconsistent in the quadratic case. |
