The association between laxity of environmental regulations and FDI inflows in developing Asian economies.

Abstract

Foreign direct investment raises the process of economic growth and development through filling saving gaps, increasing the supply of foreign exchange, and improving the balance of payment situations in host countries. However, an increase in FDI inflows from countries with stringent environmental regulations into countries where environmental regulations are weak may pose serious threats to its natural environment via creating pollution and depletion of natural resources. Therefore, the core objective of the current study is to investigate the association between laxity of environmental regulations and FDI inflows in developing Asian economies namely China, Pakistan, India, South Korea, Bangladesh, Sri Lanka, and Nepal over the period 1970-2019. The estimated results of the FE model show that there is a positive association between weak environmental regulations and FDI inflows in the sample economies. While per capita economic growth, inflation, and trade openness also reveal a positive association with the inflows of FDI into the developing Asian economies. The policy makers of the sample economies should provide not only a conducive environment to encourage further FDI inflows into the sample economies but at the same time should also aim at preserving its natural environment. On the other hand, foreign investors should also play its role in improving natural environment of the host developing Asian economies via transferring less polluting, green and environment friendly advance production technologies to developing Asian economies.