Environmental Policy Stringency and Foreign Direct Investment
AbstractThis paper examines empirically whether countries with relatively more lax environmental regimes have a comparative advantage in their competition for foreign direct investment. It seeks to contribute to the literature in several important ways. First, we use a measure of environmental stringency which is based on managers’ perceptions of the stringency in a given country and which gives us the opportunity to analyse a broad sample of both source and host countries. Second, an important strength of the technical analysis is the non-linear modeling of the impact of policy stringency on FDI. Third, we use a ‘state-of-theart’ FDI modelling strategy, which allows us to differentiate between different models of production fragmentation. Support is found for the effect of relative environmental policy stringency on foreign direct investment patterns. However, the effect is relatively small in comparison with other factors, including more general regulatory quality. Moreover, the relationship appears to be non-linear with the effects of increased relative environmental policy stringency in the host country decreasing after a certain threshold.
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Bibliographic InfoPaper provided by OECD Publishing in its series OECD Environment Working Papers with number 33.
Date of creation: 01 Jul 2011
Date of revision:
foreign direct investment; knowledge-capital model; pollution haven; environmental policies; governance;
Find related papers by JEL classification:
- F18 - International Economics - - Trade - - - Trade and Environment
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-07-27 (All new papers)
- NEP-ENV-2011-07-27 (Environmental Economics)
- NEP-REG-2011-07-27 (Regulation)
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- Adu, George, 2011.
"Effects on growth of environmental policy in a small open economy,"
118225, Swedish University of Agricultural Sciences, Department of Economics.
- George Adu, 2013. "Effects on growth of environmental policy in a small open economy," Environmental Economics and Policy Studies, Society for Environmental Economics and Policy Studies - SEEPS, vol. 15(4), pages 343-365, October.
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