Foreign direct investment and its environmental impacts: an econometric study in the State of São Paulo considering the origin, sector and host region

Abstract

The literature usually assumes Foreign Direct Investment (FDI) is associated with economic growth and the development of the host Country. Brazil, similarly to other emerging economies, presents a growing FDI in the last few years, although scholars argue foreign investments may facilitate economic development at the cost of environmental impacts. This issue is not consensually accepted, though. In some cases, FDI can bring new and cleaner technologies and increase the environmental quality of the host. Contrarily, in other cases, the demand for energy and natural resources may increase environmental degradation. Moreover, the literature argues that this impact is dependent upon the multinational companies' origins and sector, as well as host regional characteristics. Thus, this study has the goal of evaluating the environmental impacts of FDI in the State of São Paulo. To perform this research, this project will employ the first Brazilian municipal-level database of foreign investments, which will be a product of another FAPESP project (2019/19905-0). By including information on the investments' origins, sector, and regional characteristics, this study will test the hypothesis of pollution-haven, the origin effects, as well as linear and non-linear effects of FDI. These results will facilitate public policy-making for the development of the State of São Paulo. The findings will be especially beneficial for strategies related to attraction and commercial partnerships, which are usually accompanied by increases in the FDI flow. (AU)