According to the pollution heaven hypothesis, strict environmental regulation weakens the competitiveness of firms in the country, forcing the firms to move to other countries with loose environmental regulation. This study explores how environmental regulation in foreign countries affects direct investment of Korea to those countries empirically.

 

When all the countries are included in the analysis, we do not find strong evidence for supporting the pollution heaven hypothesis. However, only the non-OECD countries are considered, we find the pollution heaven hypothesis might hold in Korea.