Is there a trade‑of between fnancing current account defcits and environmental deterioration in developing countries? An empirical investigation for the validity of the pollution haven hypothesis

The impact of foreign direct investment (FDI) on environmental quality has been discussed in the environmental economics literature over the last decades. Within this scope, the pollution haven hypothesis (PHH) postulates that FDI infows can cause environmental degradation in developing countries. Using data over the period 1993–2018 for 10 developing countries with current account defcits, this paper aims to test the validity of the PHH. Therefore, the paper examines whether or not developing countries face of a trade-of between fnancing current account defcits and environmental deterioration. The paper employs panel data methods that consider cross-sectional dependence. The empirical fndings show that foreign direct investment infows have no impact on environment, meaning the PHH does not dominate for these countries. Hence, the fndings indicate that there is no trade-of between fnancing current account defcits and environmental deterioration