Environmental Regulation and Foreign Direct Investment: The Moderating Role of Cross-National Distance

This study revisits the relationship between environmental regulation and foreign direct investment (FDI), focusing on the moderating role of cross-national distance. While prior research has shown mixed evidence between the Pollution Haven Hypothesis (PHH) and the Porter Hypothesis (PH), these inconsistencies appear to arise from overlooking distance factors. Using Korea’s outward FDI data from 2001 to 2018, the analysis incorporates institutional, cultural, geographic, and economic distances. The results show that environmental regulation positively affects FDI, supporting the Porter Hypothesis. Institutional distance exerts a negative moderating effect, while industry-specific analysis reveals sectoral variation: in manufacturing, cultural distance strengthens the regulation–FDI relationship, whereas in services, geographic and economic distances play significant roles. These findings advance understanding of the environmental regulation–FDI nexus in the ESG era by highlighting the contextual importance of distance. Practically, firms should regard environmental regulation as an opportunity for innovation while adapting strategies to sector-specific distance sensitivities. Policymakers, in turn, should design differentiated approaches—promoting cross-cultural learning in manufacturing and reducing institutional barriers in services.