IDEAS home Printed from https://ideas.repec.org/p/gra/wpaper/23-04.html
   My bibliography  Save this paper

Impact of Environmental Regulation on Cross-Border MAs in high- and low-polluting sectors

Author

Listed:
  • Federico Carril-Caccia

    (Universidad de Granada, Departamento de Economia Española e Internacional)

  • Juliette Milgram Baleix

Abstract

We test the influence of environmental regulation (ER) on the location decision of cross-border Mergers and Acquisitions (M&As) for a large sample of countries, sectors, and years using a structural gravity model. Our results confirm the pollution haven hypothesis in highly polluting sectors, according to which more stringent ER makes countries less attractive to foreign investors planning to invest through M&As compared with domestic investors. Policies that set quantitative limits on emissions discourage investments in dirty sectors, while taxes on emissions only have a negative impact on clean sectors. The impact of ER differs depending on the type of investors and investees, reflecting the fact that investments in developed countries and BRICS respond to different motivations. In emerging countries, lax ER could attract significantly more inward M&As. In developed countries, ER has a less discouraging effect.

Suggested Citation

  • Federico Carril-Caccia & Juliette Milgram Baleix, 2023. "Impact of Environmental Regulation on Cross-Border MAs in high- and low-polluting sectors," ThE Papers 23/04, Department of Economic Theory and Economic History of the University of Granada..
    • Handle: RePEc:gra:wpaper:23/04
    as

    Download full text from publisher

    File URL: http://www.ugr.es/~teoriahe/RePEc/gra/wpaper/thepapers23_04.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Candau, Fabien & Dienesch, Elisa, 2017. "Pollution Haven and Corruption Paradise," Journal of Environmental Economics and Management, Elsevier, vol. 85(C), pages 171-192.
    2. Dam, Lammertjan & Scholtens, Bert, 2008. "Environmental regulation and MNEs location: Does CSR matter?," Ecological Economics, Elsevier, vol. 67(1), pages 55-65, August.
    3. Jitao Tang, 2015. "Testing the Pollution Haven Effect: Does the Type of FDI Matter?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(4), pages 549-578, April.
    4. Meng Yan & Zhen An, 2017. "Foreign Direct Investment and Environmental Pollution: New Evidence from China," Econometrics Letters, Bilimsel Mektuplar Organizasyonu (Scientific letters), vol. 4(1), pages 1-17.
    5. Bergstrand, Jeffrey H. & Egger, Peter, 2013. "What determines BITs?," Journal of International Economics, Elsevier, vol. 90(1), pages 107-122.
    6. 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.
    7. Anderson, James E. & Borchert, Ingo & Mattoo, Aaditya & Yotov, Yoto V., 2018. "Dark costs, missing data: Shedding some light on services trade," European Economic Review, Elsevier, vol. 105(C), pages 193-214.
    8. Norihiko Yamano & Joaquim Guilhoto, 2020. "CO2 emissions embodied in international trade and domestic final demand: Methodology and results using the OECD Inter-Country Input-Output Database," OECD Science, Technology and Industry Working Papers 2020/11, OECD Publishing.
    9. Keith Head & Thierry Mayer, 2021. "The United States of Europe: A Gravity Model Evaluation of the Four Freedoms," Journal of Economic Perspectives, American Economic Association, vol. 35(2), pages 23-48, Spring.
    10. Markusen James R. & Morey Edward R. & Olewiler Nancy D., 1993. "Environmental Policy when Market Structure and Plant Locations Are Endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 24(1), pages 69-86, January.
    11. Nizalova Olena Y. & Murtazashvili Irina, 2016. "Exogenous Treatment and Endogenous Factors: Vanishing of Omitted Variable Bias on the Interaction Term," Journal of Econometric Methods, De Gruyter, vol. 5(1), pages 71-77, January.
    12. Javorcik Beata Smarzynska & Wei Shang-Jin, 2003. "Pollution Havens and Foreign Direct Investment: Dirty Secret or Popular Myth?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(2), pages 1-34, December.
    13. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    14. Ahn, JaeBin & Park, Jee-Hyeong, 2022. "Identifying FDI types: Watch what they do, not what they say or look like," Economics Letters, Elsevier, vol. 213(C).
    15. Justin Paul & Gabriel R. G. Benito, 2018. "A review of research on outward foreign direct investment from emerging countries, including China: what do we know, how do we know and where should we be heading?," Asia Pacific Business Review, Taylor & Francis Journals, vol. 24(1), pages 90-115, January.
    16. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    17. Horstmann, Ignatius J & Markusen, James R, 1987. "Strategic Investments and the Development of Multinationals," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(1), pages 109-121, February.
    18. Zhonghua Cheng & Lianshui Li & Jun Liu, 2018. "The spatial correlation and interaction between environmental regulation and foreign direct investment," Journal of Regulatory Economics, Springer, vol. 54(2), pages 124-146, October.
    19. Sebastian Krautheim, 2013. "Export-supporting FDI," Canadian Journal of Economics, Canadian Economics Association, vol. 46(4), pages 1571-1605, November.
    20. List, John A. & McHone, W. Warren & Millimet, Daniel L., 2004. "Effects of environmental regulation on foreign and domestic plant births: is there a home field advantage?," Journal of Urban Economics, Elsevier, vol. 56(2), pages 303-326, September.
    21. Bergstrand, Jeffrey H. & Larch, Mario & Yotov, Yoto V., 2015. "Economic integration agreements, border effects, and distance elasticities in the gravity equation," European Economic Review, Elsevier, vol. 78(C), pages 307-327.
    22. Maddalena Conte & Pierre Cotterlaz & Thierry Mayer, 2022. "The CEPII Gravity Database," Working Papers 2022-05, CEPII research center.
    23. Karolina Ekholm & Rikard Forslid & James R. Markusen, 2021. "Export-Platform Foreign Direct Investment," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 6, pages 111-130, World Scientific Publishing Co. Pte. Ltd..
    24. Naughton, Helen T., 2014. "To shut down or to shift: Multinationals and environmental regulation," Ecological Economics, Elsevier, vol. 102(C), pages 113-117.
    25. Baumol,William J. & Oates,Wallace E., 1988. "The Theory of Environmental Policy," Cambridge Books, Cambridge University Press, number 9780521322249.
    26. 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.
    27. Antrà s, Pol & Yeaple, Stephen R., 2014. "Multinational Firms and the Structure of International Trade," Handbook of International Economics, in: Gopinath, G. & Helpman, . & Rogoff, K. (ed.), Handbook of International Economics, edition 1, volume 4, chapter 0, pages 55-130, Elsevier.
    28. Saussay, Aurélien & Zugravu-Soilita, Natalia, 2023. "International production chains and the pollution offshoring hypothesis: An empirical investigation," Resource and Energy Economics, Elsevier, vol. 73(C).
    29. Brucal, Arlan & Javorcik, Beata & Love, Inessa, 2019. "Good for the environment, good for business: Foreign acquisitions and energy intensity," Journal of International Economics, Elsevier, vol. 121(C).
    30. Garrett, Jinzhuo Z., 2016. "Explaining asymmetries in bilateral FDI flows," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 155-171.
    31. Gordon H. Hanson & Raymond J. Mataloni & Matthew J. Slaughter, 2005. "Vertical Production Networks in Multinational Firms," The Review of Economics and Statistics, MIT Press, vol. 87(4), pages 664-678, November.
    32. Head, Keith & Ries, John, 2008. "FDI as an outcome of the market for corporate control: Theory and evidence," Journal of International Economics, Elsevier, vol. 74(1), pages 2-20, January.
    33. Child, John & Rodrigues, Suzana B., 2005. "The Internationalization of Chinese Firms: A Case for Theoretical Extension?1," Management and Organization Review, Cambridge University Press, vol. 1(3), pages 381-410, November.
    34. Francesca Sanna-Randaccio & Roberta Sestini, 2012. "The Impact of Unilateral Climate Policy with Endogenous Plant Location and Market Size Asymmetry," Review of International Economics, Wiley Blackwell, vol. 20(3), pages 580-599, August.
    35. Tobias Kruse & Antoine Dechezleprêtre & Rudy Saffar & Leo Robert, 2022. "Measuring environmental policy stringency in OECD countries: An update of the OECD composite EPS indicator," OECD Economics Department Working Papers 1703, OECD Publishing.
    36. Bergstrand, Jeffrey H. & Egger, Peter, 2007. "A knowledge-and-physical-capital model of international trade flows, foreign direct investment, and multinational enterprises," Journal of International Economics, Elsevier, vol. 73(2), pages 278-308, November.
    37. Sebastian Krautheim, 2013. "Export‐supporting FDI," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(4), pages 1571-1605, November.
    38. Dam, Lammertjan & Scholtens, Bert, 2012. "The curse of the haven: The impact of multinational enterprise on environmental regulation," Ecological Economics, Elsevier, vol. 78(C), pages 148-156.
    39. Yong Joon Jang, 2011. "The Impact of Bilateral Free Trade Agreements on Bilateral Foreign Direct Investment among Developed Countries," The World Economy, Wiley Blackwell, vol. 34(9), pages 1628-1651, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Federico Carril‐Caccia & Elena Pavlova, 2020. "Mergers and acquisitions & trade: A global value chain analysis," The World Economy, Wiley Blackwell, vol. 43(3), pages 586-614, March.
    2. Federico Carril-Caccia, 2020. "Will the Future EU-UK Free Trade Agreement Affect Foreign Direct Investment?," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 55(4), pages 266-270, July.
    3. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2022. "Does terrorism affect greenfield investment? A structural gravity approach," ThE Papers 22/06, Department of Economic Theory and Economic History of the University of Granada..
    4. Kox, Henk L.M. & Rojas Romasgosa, Hugo, 2019. "Gravity estimations with FDI bilateral data: Potential FDI effects of deep preferential trade agreements," MPRA Paper 96318, University Library of Munich, Germany.
    5. 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.
    6. Henk L. M. Kox & Hugo Rojas‐Romagosa, 2020. "How trade and investment agreements affect bilateral foreign direct investment: Results from a structural gravity model," The World Economy, Wiley Blackwell, vol. 43(12), December.
    7. Federico Carril-Caccia & Aitor Garmendia-Lazcano & Asier Minondo, 2022. "The border effect on mergers and acquisitions," Empirical Economics, Springer, vol. 62(3), pages 1267-1292, March.
    8. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "Does Terrorism Affect Foreign Direct Investment?," Working Papers 1913, Department of Applied Economics II, Universidad de Valencia.
    9. Blyde, Juan & Molina, Danielken, 2015. "Logistic infrastructure and the international location of fragmented production," Journal of International Economics, Elsevier, vol. 95(2), pages 319-332.
    10. Imad Moosa, 2019. "The Environmental Effects of FDI: Evidence from MENA Countries," Working Papers 1321, Economic Research Forum, revised 21 Aug 2019.
    11. Aurélien Saussay & Misato Sato, 2018. "The Impacts of Energy Prices on Industrial Foreign Investment Location: Evidence from Global Firm Level Data," SciencePo Working papers Main hal-03475473, HAL.
    12. Herman, Peter R. & Oliver, Sarah, 2023. "Trade, policy, and economic development in the digital economy," Journal of Development Economics, Elsevier, vol. 164(C).
    13. Camarero, Mariam & Moliner, Sergi & Tamarit, Cecilio, 2024. "A Fresh Assessment of the Depth of the “Euro Effect" on US FDI," Single Market Economics Papers WP2024/18, Directorate-General for Internal Market, Industry, Entrepreneurship and SMEs (European Commission), Chief Economist Team.
    14. Zongo, Amara, 2020. "The Impact of Restrictive Measures on Bilateral FDI in OECD Countries," MPRA Paper 101929, University Library of Munich, Germany.
    15. Amara Zongo, 2022. "The effects of restrictive measures on cross‐border investment: Evidence from OECD and emerging countries," The World Economy, Wiley Blackwell, vol. 45(8), pages 2428-2477, August.
    16. Andrzej Cieslik & Mahdi Ghodsi, 2021. "Economic sentiment indicators and foreign direct investment: Empirical evidence from European Union countries," International Economics, CEPII research center, issue 168, pages 56-75.
    17. Mariam Camarero & Sergi Moliner & Cecilio Tamarit, 2021. "Is there a euro effect in the drivers of US FDI? New evidence using Bayesian model averaging techniques," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(4), pages 881-926, November.
    18. Valentina Raimondi & Margherita Scoppola, 2022. "Foreign land acquisitions and environmental regulations: Does the pollution‐haven effect hold?," Journal of Agricultural Economics, Wiley Blackwell, vol. 73(1), pages 172-194, February.
    19. Mariam Camarero & Laura Montolio & Cecilio Tamarit, 2020. "Determinants of FDI for Spanish regions: evidence using stock data," Empirical Economics, Springer, vol. 59(6), pages 2779-2820, December.
    20. Mariam Camarero & Sergi Moliner & Cecilio Tamarit, 2022. "A fresh assessment of the euro effect on outward US FDI," Working Papers 2209, Department of Applied Economics II, Universidad de Valencia.

    More about this item

    Keywords

    Environmental stringency; pollution havens; M&As; structural gravity; polluting sectors.;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gra:wpaper:23/04. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Angel Solano Garcia. (email available below). General contact details of provider: https://edirc.repec.org/data/dtugres.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.