Outward US Foreign Direct Investment and Environmental Degradation

Abstract

This chapter analyzes whether US outward foreign direct investment contributes to mitigating environmental degradation in host countries or not. This relationship is investigated within the environmental Kuznets curve framework, using dynamic panel data models which include trade openness and environmental regulation as controlling variables. The results lend support to the existence of an environmental Kuznets curve hypothesis. Moreover, the results indicate that capital expenditures from majority-owned foreign affiliates of US multinationals decrease carbon dioxide emissions per capita and provide support for the pollution halo hypothesis. The findings suggest that foreign direct investments carried out by firms with their headquarters based in the United States of America enhance the natural environment. These findings offer some support for host government policies offering generous financial incentives to attract environmentally friendly investments to improve environmental sustainability.