Can a colonial legacy explain the pollution haven hypothesis? A city-level panel analysis.

• This study investigates how colonial legacy relates to the FDI's environmental externalities based on a city-level panel dataset. • Several major types of industrial pollution indicators including sulfur dioxide, wastewater, soot and dust emissions are examined. • FDI has a positive effect on environmental pollution and such effect is intensified in regions with colonial influence in general. • The intensified environmental impact of FDI is more pronounced with the western colonial influence but it is insignificant with japanese colonial influence. There has long been a debate on how inward foreign direct investment (FDI) affects host countries' natural environment. From a historical perspective, we investigate how colonial legacy relates to the FDI's environmental externalities in China. Our empirical strategy is based on a panel dataset of 288 Chinese cities over the period from 2011 to 2016 and amassed information about China's modern history from 1842 to 1955, with focus on several types of industrial pollution indicators including sulfur dioxide, wastewater, and haze emissions. Our results show that FDI has a positive effect on environmental pollution and this effect is intensified in regions with colonial influence in general. When we further identify the two natures of colonization experience, we find that the intensified environmental impact of FDI is more pronounced with the Western colonial influence while it is insignificant with Japanese colonial influence. These findings are robust to applying different methods including random effect, fixed effect and system GMM. [ABSTRACT FROM AUTHOR]