An empirical analysis of the pollution haven hypothesis for India

Abstract

The objective of this paper is to identify the presence of the Pollution Haven or Pollution Halo Hypothesis for India for the time period 1990 to 2025, under the ARDL framework with cointegration and causality. The ARDL model was found to be suitable for the study. Bounds test results confirmed the presence of a long-term cointegration relation; the error correction term was negative and significant. Reliability and stability diagnostics were found to be significant. Results indicate that macroeconomic phenomena like labour productivity and natural resource endowments are significantly responsible for carbon dioxide emissions, rather than inward FDI. The study indicates that India is moving towards a Pollution Halo with FDI; lax environmental regulations no longer play a dominant role in attracting FDI into India. Inward FDI is not a significant variable for increasing emissions; labour productivity contributes to environmental improvements and dependence upon natural resources results in environmental degradation. The study concludes that sustainability depends more on maintaining domestic macroeconomic parameters, technology development and resource management rather than FDI. This research also suggests economic and environmental policy implications based on the study outcomes.