Abstract:
This study investigates the potential existence of the Pollution Haven Hypothesis (PHH) in
Bangladesh. The objective is to examine the impact of lax environmental policies on foreign
direct investment (FDI) inflows and evaluate the subsequent effects of these inflows on
pollution levels within the country. Employing both quantitative and qualitative approaches,
the analysis incorporates the Johansen cointegration test, Vector Error (VECM), and Granger
causality test, complemented by Key Informant Interviews (KII) with 12 experts. The Johansen
cointegration test identifies a long-run relationship between CO2 emissions and FDI inflows,
though this connection lacks statistical robustness. The VECM results suggest that FDI inflows
are shaped by a combination of economic and environmental factors, with inflation emerging
as a significant deterrent. The Granger causality test reveals no significant causal relationships
between FDI and CO2 emissions, inflation, or trade openness, although FDI significantly
impacts GDP per capita and electric power consumption. The qualitative findings emphasize
low labour costs, market size, and geopolitical considerations as key determinants of FDI,
while concerns are raised about the environmental risks posed by FDI in polluting industries.
Overall, the study has found limited evidence in support of the pollution haven hypothesis
(PHH) in Bangladesh, concluding that weak environmental regulations are not the primary
factor attracting FDI in Bangladesh. The study advocates for strengthened environmental
enforcement, the diversification of FDI into less polluting sectors, and the promotion of cleaner
technologies to achieve sustainable industrial growth without compromising environmental
integrity.
