IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_5262.html
   My bibliography  Save this paper

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

Author

Listed:
  • 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.

Suggested Citation

  • Sylwia Bialek & Alfons J. Weichenrieder, 2015. "Do Stringent Environmental Policies Deter FDI? M&A versus Greenfield," CESifo Working Paper Series 5262, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_5262
    as

    Download full text from publisher

    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp5262.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Baomin Dong & Jiong Gong & Xin Zhao, 2012. "FDI and environmental regulation: pollution haven or a race to the top?," Journal of Regulatory Economics, Springer, vol. 41(2), pages 216-237, April.
    2. John A. List & W. Warren McHone & Daniel L. Millimet, 2003. "Effects of air quality regulation on the destination choice of relocating plants," Oxford Economic Papers, Oxford University Press, vol. 55(4), pages 657-678, October.
    3. Daniel J. Henderson & Daniel L. Millimet, 2007. "Pollution Abatement Costs and Foreign Direct Investment Inflows to U.S. States: A Nonparametric Reassessment," The Review of Economics and Statistics, MIT Press, vol. 89(1), pages 178-183, February.
    4. Judith M. Dean & Mary E. Lovely & Hua Wang, 2017. "Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China," World Scientific Book Chapters,in: International Economic Integration and Domestic Performance, chapter 9, pages 155-167 World Scientific Publishing Co. Pte. Ltd..
    5. McGuire, Martin C., 1982. "Regulation, factor rewards, and international trade," Journal of Public Economics, Elsevier, vol. 17(3), pages 335-354, April.
    6. 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.
    7. Rema Hanna, 2010. "US Environmental Regulation and FDI: Evidence from a Panel of US-Based Multinational Firms," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 158-189, July.
    8. Yingying Dong & Arthur Lewbel & Thomas Tao Yang, 2012. "Comparing Features of Convenient Estimators for Binary Choice Models With Endogenous Regressors," Boston College Working Papers in Economics 789, Boston College Department of Economics, revised 15 May 2012.
    9. 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.
    10. Arik Levinson, 2010. "Pollution and international trade in services," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 10(2), pages 93-105, June.
    11. Ulrich Wagner & Christopher Timmins, 2009. "Agglomeration Effects in Foreign Direct Investment and the Pollution Haven Hypothesis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(2), pages 231-256, June.
    12. Aichele, Rahel & Felbermayr, Gabriel, 2012. "Kyoto and the carbon footprint of nations," Journal of Environmental Economics and Management, Elsevier, vol. 63(3), pages 336-354.
    13. Ferreira, Fernando, 2010. "You can take it with you: Proposition 13 tax benefits, residential mobility, and willingness to pay for housing amenities," Journal of Public Economics, Elsevier, vol. 94(9-10), pages 661-673, October.
    14. Shafik Hebous & Martin Ruf & Alfons J. Weichenrieder, 2010. "The Effects of Taxation on the Location Decision of Multinational Firms: M&A vs. Greenfield Investments," CESifo Working Paper Series 3076, CESifo Group Munich.
    15. Huizinga, Harry & Voget, Johannes & Wagner, Wolf, 2012. "Who bears the burden of international taxation? Evidence from cross-border M&As," Journal of International Economics, Elsevier, vol. 88(1), pages 186-197.
    16. Arthur Lewbel & Yingying Dong & Thomas Tao Yang, 2012. "Viewpoint: Comparing features of convenient estimators for binary choice models with endogenous regressors," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 809-829, August.
    17. Levinson, Arik, 1999. "Grandfather regulations, new source bias, and state air toxics regulations," Ecological Economics, Elsevier, vol. 28(2), pages 299-311, February.
    18. Kenneth Train ., 2000. "Halton Sequences for Mixed Logit," Economics Working Papers E00-278, University of California at Berkeley.
    19. Blonigen, Bruce A. & Davies, Ronald B. & Waddell, Glen R. & Naughton, Helen T., 2007. "FDI in space: Spatial autoregressive relationships in foreign direct investment," European Economic Review, Elsevier, vol. 51(5), pages 1303-1325, July.
    20. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2007. "Estimating models of complex FDI: Are there third-country effects?," Journal of Econometrics, Elsevier, vol. 140(1), pages 260-281, September.
    21. Edward Manderson & Richard Kneller, 2012. "Environmental Regulations, Outward FDI and Heterogeneous Firms: Are Countries Used as Pollution Havens?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(3), pages 317-352, March.
    22. Cole, Matthew A. & Fredriksson, Per G., 2009. "Institutionalized pollution havens," Ecological Economics, Elsevier, vol. 68(4), pages 1239-1256, February.
    23. Pethig, Rudiger, 1976. "Pollution, welfare, and environmental policy in the theory of Comparative Advantage," Journal of Environmental Economics and Management, Elsevier, vol. 2(3), pages 160-169, February.
    24. Chung, Sunghoon, 2014. "Environmental regulation and foreign direct investment: Evidence from South Korea," Journal of Development Economics, Elsevier, vol. 108(C), pages 222-236.
    25. Ben Kheder, Sonia & Zugravu, Natalia, 2012. "Environmental regulation and French firms location abroad: An economic geography model in an international comparative study," Ecological Economics, Elsevier, vol. 77(C), pages 48-61.
    26. Fredriksson, Per G. & List, John A. & Millimet, Daniel L., 2003. "Bureaucratic corruption, environmental policy and inbound US FDI: theory and evidence," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1407-1430, August.
    27. Rezza, Alief A., 2013. "FDI and pollution havens: Evidence from the Norwegian manufacturing sector," Ecological Economics, Elsevier, vol. 90(C), pages 140-149.
    28. Kellenberg, Derek K., 2009. "An empirical investigation of the pollution haven effect with strategic environment and trade policy," Journal of International Economics, Elsevier, vol. 78(2), pages 242-255, July.
    29. Ackerman, Frank & Biewald, Bruce & White, David & Woolf, Tim & Moomaw, William, 1999. "Grandfathering and coal plant emissions: the cost of cleaning up the Clean Air Act," Energy Policy, Elsevier, vol. 27(15), pages 929-940, December.
    30. Levinson, Arik, 1996. "Environmental regulations and manufacturers' location choices: Evidence from the Census of Manufactures," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 5-29, October.
    31. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
    32. Vincent Delbecque & Isabelle Méjean & Lise Patureau, 2014. "Labor market institutions and firms’ location choices," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(1), pages 115-148, February.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    FDI; environmental stringency; mixed logit; entry mode; PHH;

    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

    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:ces:ceswps:_5262. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Klaus Wohlrabe). General contact details of provider: http://edirc.repec.org/data/cesifde.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.