Political Connections and the Environmental Impacts of Foreign Investments

• In Event: Advocacy, Voting, and Mobilization

Abstract

Do intergovernmental political connections affect the environmental impacts of foreign investment? Specifically, do political factors influence the location and environmental standards of infrastructure projects? In the context of China’s Belt and Road Initiative (BRI), it is often assumed that political connections and other local political issues in destination countries impact project siting and the extent of community involvement. I theorize that more politically connected projects are less likely to adhere to regulatory standards. Political connections facilitate regulatory capture, and political support means that projects are more likely to be approved, even in the face of community opposition. Conversely, politically driven investments may be less likely to go through rigorous environmental impact assessments. To test this argument, I use a geolocated dataset of China’s overseas investments in the energy sector. I pool investments across democratic countries, and use a close-elections regression discontinuity design to identify the effect of political influence on the likelihood that a subnational region receives an energy investment in this sub-sample of countries. I use this sub-sample to investigate the differences in the environmental impacts of Chinese-sponsored energy investments across politically-aligned and non-aligned regions. Findings show that: (i) overseas investments projects are more likely to go to politically connected regions; and (ii) that these politically connected projects are, on average, less environmentally sustainable. However, this negative environmental effect is conditioned by the overall level of national environmental regulation. These findings contribute to theoretical explanations about host country politics and the environmental impacts of foreign investment, as well as to current debates on the environmental impacts of China’s growing overseas investments.

Author

• Meir Alkon, Harvard University