"Pollution Haven" or "Pollution Halo": Evidence from microdata of Chinese firms’ OFDI

This study investigates whether Chinese outward foreign direct investment exhibits a "Pollution Haven" or "Pollution Halo" effect. Using a firm-host country-year panel dataset of Chinese listed companies from 2005 to 2023 and a PPMLHDFE estimator, we find that heavily polluting firms show a significant preference for investing in host countries with stricter environmental regulations, robustly supporting the "Pollution Halo Effect." Mechanism analyses reveal that this effect is primarily driven by firms' pursuit of ESG (Environmental, Social, and Governance) reputation and their total factor productivity advantage, rather than by the level of innovation. Furthermore, the effect is more pronounced in state-owned enterprises, highly competitive industries, and non-"Belt and Road" host countries. Our findings suggest that Chinese OFDI in high-regulation markets is a strategic response for legitimacy building and leveraging competitive strengths, offering implications for green OFDI policy.