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Do Energy Prices Drive Outward FDI? Evidence from a Sample of Listed Firms

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  • Gregoire Garsous, Tomasz Kozluk, Dennis Dlugosch

Abstract

Affordable energy is often argued to be a vital condition for manufacturing industries to be able to compete on global markets. Consequently, the idea of introducing a (unilateral) carbon tax is usually opposed on the grounds of potential losses of competitiveness and leakage of economic activity abroad. In this paper, we shed light on one potential channel of such effects - the impact of energy prices on firms' outward FDI. Using an instrumental variable strategy we estimate the longer-term effects on a sample of listed firms from 9 manufacturing sectors in 24 OECD countries over 1995-2008. The results suggest that relative energy prices - that is the difference between domestic energy prices and prices in the potential FDI destination - are significantly and asymmetrically related to firms' outward FDI asset share. Only firms that faced increases in the relative energy prices have increased their international asset position and this effect was relatively small.

Suggested Citation

  • Gregoire Garsous, Tomasz Kozluk, Dennis Dlugosch, 2020. "Do Energy Prices Drive Outward FDI? Evidence from a Sample of Listed Firms," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 63-80.
    • Handle: RePEc:aen:journl:ej41-3-garsous
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    Cited by:

    1. Anderson, Brilé & Cammeraat, Emile & Dechezleprêtre, Antoine & Dressler, Luisa & Gonne, Nicolas & Lalanne, Guy & Martins Guilhoto, Joaquim & Theodoropoulos, Konstantinos, 2023. "Designing policy packages for a climate-neutral industry: A case study from the Netherlands," Ecological Economics, Elsevier, vol. 205(C).
    2. Liu, Hongxun & Gao, Jinfeng & Tian, Peng & Ma, Xiaoming & Meng, Guanfei & Yang, Jingnan & Li, Zhi, 2023. "The impact of environmental regulation on productivity with co-production of goods and bads," Energy Economics, Elsevier, vol. 125(C).
    3. Peter Kjær Kruse-Andersen & Peter Birch Sørensen, 2021. "Opimal Unilateral Climate Policy with Carbon Leakage at the Extensive and the Intensive Margin," CESifo Working Paper Series 9185, CESifo.
    4. Robert J R Elliott & Puyang Sun & Tong Zhu, 2021. "Energy Abundance, the Geographical Distribution of Manufacturing, and International Trade," Discussion Papers 21-16, Department of Economics, University of Birmingham.

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    JEL classification:

    • F0 - International Economics - - General

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