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Strategic Environmental Policies in the Presence of Foreign Direct Investment

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  • M. Kayalica
  • Sajal Lahiri

Abstract

We analyze strategic environmental standards in the presence of foreign direct investment. A number of foreign firms located in a host country compete with a domestic firm in another country to export a homogeneous good to a third country. When the number of foreign firms is exogenous, the host country applies a stricter environmental regulation than the other producing country. However, under free entry and exit of foreign firms, the host country may apply a less severe standard under both non-cooperative and cooperative equilibrium. We also find that the nature market structure does not affect the equilibrium values of total pollution if export subsidies are also used. Copyright Springer 2005

Suggested Citation

  • M. Kayalica & Sajal Lahiri, 2005. "Strategic Environmental Policies in the Presence of Foreign Direct Investment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 30(1), pages 1-21, January.
    • Handle: RePEc:kap:enreec:v:30:y:2005:i:1:p:1-21
    DOI: 10.1007/s10640-004-0757-3
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    References listed on IDEAS

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    1. Wayne B. Gray, 1997. "Manufacturing Plant Location: Does State Pollution Regulation Matter?," NBER Working Papers 5880, National Bureau of Economic Research, Inc.
    2. Lahiri, Sajal & Ono, Yoshiyasu, 2000. "Protecting the environment in the presence of foreign direct investment: tax versus quantity restriction," Economics Discussion Papers 9985, University of Essex, Department of Economics.
    3. Martin D. D. Evans & Richard K. Lyons, 2017. "Are Different-Currency Assets Imperfect Substitutes?," World Scientific Book Chapters, in: Studies in Foreign Exchange Economics, chapter 10, pages 415-456, World Scientific Publishing Co. Pte. Ltd..
    4. repec:esx:essedp:506 is not listed on IDEAS
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    Cited by:

    1. Masako Ikefuji & Jun-ichi Itaya & Makoto Okamura, 2016. "Optimal Emission Tax with Endogenous Location Choice of Duopolistic Firms," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(2), pages 463-485, October.
    2. Keisaku Higashida & Hiroaki Ino, 2019. "Strategic Production Subsidy/Tax under Mutual Endogenous Entry of Foreign Firms," Discussion Paper Series 201, School of Economics, Kwansei Gakuin University.
    3. Francesca Sanna-Randaccio & Roberta Sestini & Ornella Tarola, 2017. "Unilateral Climate Policy and Foreign Direct Investment with Firm and Country Heterogeneity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 67(2), pages 379-401, June.
    4. Thierry Madiès & Ornella Tarola & Emmanuelle Taugourdeau, 2022. "Tax haven, pollution haven or both?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 29(6), pages 1527-1560, December.
    5. HIGASHIDA Keisaku & ISHIKAWA Jota & TARUI Nori, 2021. "Carrying Carbon? Negative and Positive Carbon Leakage with International Transport," Discussion papers 21102, Research Institute of Economy, Trade and Industry (RIETI).
    6. Ki-Dong Lee & Woohyung Lee & Kichun Kang, 2014. "Pollution Haven with Technological Externalities Arising from Foreign Direct Investment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 57(1), pages 1-18, January.
    7. Robert Elliott & Ying Zhou, 2013. "Environmental Regulation Induced Foreign Direct Investment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(1), pages 141-158, May.
    8. Fikru, Mahelet G. & Gautier, Luis, 2020. "Are big mergers welfare enhancing when there is environmental externality?," Energy Economics, Elsevier, vol. 87(C).
    9. Imad Moosa, 2019. "The Environmental Effects of FDI: Evidence from MENA Countries," Working Papers 1321, Economic Research Forum, revised 21 Aug 2019.
    10. Rafael S. Espinosa Ramírez & M. Ozgur Kayalica, 2007. "Environmental Policies and Mergers’ Externalities," Economía Mexicana NUEVA ÉPOCA, CIDE, División de Economía, vol. 0(1), pages 47-74, January-J.
    11. Juan Carlos Bárcena-Ruiz & María Begoña Garzón, 2017. "Environmental Policy, North-South Trade and FDI," Journal of Industry, Competition and Trade, Springer, vol. 17(4), pages 371-386, December.
    12. Bouwe R. Dijkstra & Anuj Joshua Mathew & Arijit Mukherjee, 2011. "Environmental Regulation: An Incentive for Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 19(3), pages 568-578, August.
    13. Fabio Antoniou & Efthymia Kyriakopoulou, 2019. "On the Strategic Effect of International Permits Trading on Local Pollution," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(3), pages 1299-1329, November.
    14. Haitao CHENG & ISHIKAWA Jota, 2021. "Carbon Tax and Border Tax Adjustments with Technology and Location Choices," Discussion papers 21030, Research Institute of Economy, Trade and Industry (RIETI).
    15. Paul Missios & Halis Murat Yildiz & Ida Ferrara, 2009. "Foreign Direct Investment and the Choice of Environmental Policy," Working Papers 004, Ryerson University, Department of Economics.
    16. Baomin Dong & Jiong Gong & Xin Zhao, 2012. "FDI and environmental regulation: pollution haven or a race to the top?," Journal of Regulatory Economics, Springer, vol. 41(2), pages 216-237, April.
    17. Fabio Antoniou & Panos Hatzipanayotou & Nikos Tsakiris, 2021. "Strategic Export Motives and Linking Emission Markets," CESifo Working Paper Series 8847, CESifo.
    18. Luis Gautier, 2017. "Foreign direct investment under fiscal interdependence when policy is set unilaterally," International Economics and Economic Policy, Springer, vol. 14(4), pages 579-599, October.
    19. Yan, Yan & Li, Yi, 2023. "Technology spillovers, strategic environmental policy, and foreign direct investment," Energy Economics, Elsevier, vol. 127(PA).
    20. Luis Gautier, 2017. "Local content and emission taxes when the number of foreign firms is endogenous," Journal of Economics, Springer, vol. 122(3), pages 239-266, November.
    21. Celik, Sule & Orbay, Benan Zeki, 2011. "Location choice under trade and environmental policies," Economic Modelling, Elsevier, vol. 28(4), pages 1710-1715, July.

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