Pollution Haven or Pollution Halo: Evidence in Forestry in Developing Countries

Forest plays a key role in tracking carbon from the atmosphere by acting as carbon sinks. However, foreign direct investment (FDI) stocks can affect forest cover. This study aims to investigate the validity of the pollution haven hypothesis/pollution halo hypothesis in the forest sector in developing countries. This research makes use of secondary data from the World Development Indicators (WDIs) of the World Bank, the Worldwide Governance Indicators (WGI) and the Organization for Economic Co-operation and Development (OECD) from 92 developing countries over the period 2002–2020. The estimation results of a panel threshold regression (PTR) suggest the validity of the pollution haven hypothesis in developing countries. The findings point out that, developing countries should regulate attraction of FDIs, as these increase deforestation. Developing countries should implement environmental policies towards making FDI not contributing to deforestation.