Rethinking green finance in greenfield investments: The moderating role of institutional qualities on environmental performance

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The Handbook of Energy Policy


The sole role of greenfield investment as a source for inducing greater environmental performance is debatable. This chapter investigates the linkages between greenfield investments, economic growth, and the role of institutional quality in environmental performance of all Asian countries between 2000 and 2018. The recently developed Environmental Performance Index (EPI) from Yale University has been adopted in this study as a proxy to measure environmental performance. Newly developed panel data methods based on the Dynamic Common Correlated Estimator (DCCE) that considers cross-sectional dependence across regions were used for the analysis. The study showed that the environmental performance in Asian countries improves when greenfield investments are made by strong institutions. The study also indicated that when good institutional factors are in place, good regulation can moderate the pollution haven hypothesis. Therefore, in the presence of supporting institutions, greenfield investments can be a worthwhile source of green finance. Also, there is evidence of support toward the Kuznets hypothesis given the positive and significant effect of economic growth on environmental performance in those countries.

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