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Do Stringent Environmental Policies Deter FDI? M&A versus Greenfield

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Listed author(s):
  • Sylwia Bialek
  • Alfons J. Weichenrieder

Abstract

This study examines how environmental stringency affects the location decision of foreign direct investments. We analyze a firm-level data set on German outbound FDI and innovate on previous studies by controlling for the mode of entry and applying the mixed-logit analysis. The results show that Greenfield projects react to environmental regulation in a strongly different way than M&As. We find robust support for pollution haven hypothesis for polluting Greenfields. M&A investments in low polluting industries, on the other hand, seem to be attracted by stricter environmental regulation. We introduce a new instrumental variable for environmental stringency and apply it to verify the results.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 5262.

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Date of creation: 2015
Handle: RePEc:ces:ceswps:_5262
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Keywords: FDI; environmental stringency; mixed logit; entry mode; PHH;

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Find related papers by JEL classification:
  • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
  • Q50 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - General
  • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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