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

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  • 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
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    References listed on IDEAS

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    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

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