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Environmental Policy Stringency and Foreign Direct Investment

Author

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  • Margarita Kalamova

    (OECD)

  • Nick Johnstone

    (OECD)

Abstract

This paper examines empirically whether countries with relatively more lax environmental regimes have a comparative advantage in their competition for foreign direct investment. It seeks to contribute to the literature in several important ways. First, we use a measure of environmental stringency which is based on managers’ perceptions of the stringency in a given country and which gives us the opportunity to analyse a broad sample of both source and host countries. Second, an important strength of the technical analysis is the non-linear modeling of the impact of policy stringency on FDI. Third, we use a ‘state-of-theart’ FDI modelling strategy, which allows us to differentiate between different models of production fragmentation. Support is found for the effect of relative environmental policy stringency on foreign direct investment patterns. However, the effect is relatively small in comparison with other factors, including more general regulatory quality. Moreover, the relationship appears to be non-linear with the effects of increased relative environmental policy stringency in the host country decreasing after a certain threshold.

Suggested Citation

  • Margarita Kalamova & Nick Johnstone, 2011. "Environmental Policy Stringency and Foreign Direct Investment," OECD Environment Working Papers 33, OECD Publishing.
  • Handle: RePEc:oec:envaaa:33-en
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    File URL: http://dx.doi.org/10.1787/5kg8ghvf85d5-en
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    Cited by:

    1. Misato Sato & Gregor Singer & Damien Dussaux & Stefania Lovo, 2015. "International and sectoral variation in energy prices 1995-2011: how does it relate to emissions policy stringency?," GRI Working Papers 187, Grantham Research Institute on Climate Change and the Environment.
    2. George Adu, 2013. "Effects on growth of environmental policy in a small open economy," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 15(4), pages 343-365, October.
    3. Blohmke, Julian & Kemp, René & Türkeli, Serdar, 2016. "Disentangling the causal structure behind environmental regulation," Technological Forecasting and Social Change, Elsevier, vol. 103(C), pages 174-190.

    More about this item

    Keywords

    environmental policies; foreign direct investment; governance; knowledge-capital model; pollution haven;

    JEL classification:

    • F18 - International Economics - - Trade - - - Trade and Environment
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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