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Foreign Direct Investment and Environmental Taxes

  • Roberto A. De Santis
  • Frank Stähler

This paper studies the effect of foreign direct investment (FDI) on environmental policy stringency in a two-country model with trade costs, where FDI could be unilateral and bilateral and both governments address local pollution through environmental taxes. We show that FDI does not give rise to ecological dumping because the host country has an incentive to shift rents away from the source country toward the host country. Environmental policy strategies and welfare effects are studied under the assumption that parameter values support FDI to be profitable. Copyright 2008 The Authors. Journal Compilation Verein für Socialpolitik and Blackwell Publishing Ltd. 2008.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0475.2008.00444.x
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Article provided by Verein für Socialpolitik in its journal German Economic Review.

Volume (Year): 10 (2009)
Issue (Month): (02)
Pages: 115-135

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Handle: RePEc:bla:germec:v:10:y:2009:i::p:115-135
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  1. James R. Markusen, 2004. "Multinational Firms and the Theory of International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262633078, June.
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  11. Roberto A. De Santis & Frank Stähler, 1999. "Endogenous Market Structure and the Gains from Foreign Direct Inverstment," Kiel Working Papers 958, Kiel Institute for the World Economy.
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  16. 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.
  17. Markusen, James R & Maskus, Keith E, 2002. "Discriminating among Alternative Theories of the Multinational Enterprise," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 694-707, November.
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