International business activities and their impact on the environment: governance regulations and the pollution haven hypothesis

This paper aims to examine the impact of international business (IB) activities on environmental quality using a country-level data set from 1990 to 2023. This study first uses generalized method of moment (GMM) controlling for unobservable factors to estimate the impact of IB activities on environmental issues (CO2 and greenhouse gas emission) on a panel data set of 4,250 observations. Furthermore, using moderating models, this study examines how environmental impact of IB is influenced by governance such as environmental tax rates and regulation levels. The authors’ analysis confirms that increased IB activities are associated with higher emissions, which are mitigated during the COVID-19 pandemic. More importantly, when environmental tax rates increase or regulations are stronger, more IB activities lead to less emissions, which confirms pollution haven hypothesis. These findings highlight the importance of robust governance frameworks in mitigating the adverse environmental impacts of cross-border business, suggesting that targeted policies can help balance the benefits of IB activities with environmental sustainability objectives to achieve both SDG 8 (Economic growth) and SDG 13 (Climate Action). This research offers a significant contribution by integrating moderation analysis with GMM estimation to explore how governance factors, such as environmental tax rates and regulation, condition the environmental impact of IB.