Reconciling the conflict between the `pollution-haven' hypothesis and an emerging trajectory of international technology transfer

Abstract

Many developing countries have relied on technology transfer through foreign direct investment (FDI) from developed countries as a primary means of technology acquisition. However, recent increased global eco-consciousness and linking of trade and investment with environmental issues has the potential of disrupting these investment flows. This paper investigates the validity of the `pollution-haven' hypothesis (which claims that an open market regime will encourage the flow of generally low-technology polluting industries to developing countries) from a neo-technology trade perspective. In the process, an emerging trajectory of international technology transfer favoring high-technology industries is established. This paper concludes that positive measures enhancing FDI is not only crucial for technology upgrading, but at the same time brings about enhanced environmental welfare through transfer of eco-friendly products and production processes.