THE IMPACT OF ENVIRONMENTAL REGULATIONS ON FOREIGN DIRECT INVESTMENT: A LITERATURE REVIEW

Abstract

Foreign direct investment (FDI) is essential for the global economy, especially for developing and emerging countries, which are dependent on these financial resources. Governments compete to attract foreign investors by offering tax incentives, strong regulatory frameworks and flexible environmental regulations. While some countries relax environmental regulations to attract FDI, others implement stricter measures to reduce greenhouse gas emissions and protect the environment. The aim of this article is to present a thorough and up-to-date review of the literature that has focused on the analysis of the correlation between FDI and environmental regulations. The bibliometric analysis focuses on the main concepts that elucidate the relationship between environmental regulations and SDI, highlighting current trends and theories. This research is crucial for understanding the influence of environmental regulation on FDI and its effects on economic development and environmental conservation worldwide. According to the literature, the pollution haven theory has received substantial support, indicating that nations with permissive regulations attract more foreign direct investment due to lower business costs. The literature indicates strong support for the pollution haven theory, suggesting that countries with relaxed regulations attract more FDI due to lower business costs. The results of this study could help inform the development of environmental policies and strategies to attract foreign investment and address climate change and environmental degradation. At the same time, this research provides valuable information for researchers as it highlights the main research niches that need to be addressed and analysed.

Keywords

• foreign direct investment
• determinants
• environmental regulations
• pollution haven theory
• race to the top theory