IDEAS home Printed from https://ideas.repec.org/p/una/unccee/wp0811.html
   My bibliography  Save this paper

Strict environmental policy: An incentive for FDI

Author

Listed:
  • Bouwe R. Dijkstra

    () (University of Nottingham)

  • Anuj J. Mathew

    ()

  • Arijit Mukherjeea

    () (University of Nottingham)

Abstract

Empirical evidence has so far failed to confirm that lenient environmental regulation attracts investment from polluting firms. We show that a firm may want to relocate to a country with stricter environmental regulation, when the move raises its rival's cost by sufficiently more than its own. We model a Cournot duopoly with a foreign and an incumbent domestic firm. When the foreign firm moves to the home country, the domestic government will respond by increasing the environmental tax rate. This may hurt the domestic firm more than the foreign firm. The home (foreign) country's welfare is (usually) lower with FDI.

Suggested Citation

  • Bouwe R. Dijkstra & Anuj J. Mathew & Arijit Mukherjeea, 2011. "Strict environmental policy: An incentive for FDI," Faculty Working Papers 08/11, School of Economics and Business Administration, University of Navarra.
  • Handle: RePEc:una:unccee:wp0811
    as

    Download full text from publisher

    File URL: http://www.unav.edu/documents/10174/6546776/1299002385_WP_UNAV_08_11.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Petrakis, Emmanuel & Xepapadeas, Anastasios, 2003. "Location decisions of a polluting firm and the time consistency of environmental policy," Resource and Energy Economics, Elsevier, vol. 25(2), pages 197-214, May.
    2. Matthew A. Cole & Robert J. R. Elliott & Per G. Fredriksson, 2006. "Endogenous Pollution Havens: Does FDI Influence Environmental Regulations?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(1), pages 157-178, March.
    3. Virginia D. McConnell & Robert M. Schwab, 1990. "The Impact of Environmental Regulation on Industry Location Decisions: The Motor Vehicle Industry," Land Economics, University of Wisconsin Press, vol. 66(1), pages 67-81.
    4. List, John A. & Co, Catherine Y., 2000. "The Effects of Environmental Regulations on Foreign Direct Investment," Journal of Environmental Economics and Management, Elsevier, vol. 40(1), pages 1-20, July.
    5. Michaelis, Peter, 1994. "Regulate us, please!: On strategic lobbying in cournot-nash oligopoly," Kiel Working Papers 626, Kiel Institute for the World Economy (IfW).
    6. repec:wsi:wschap:9789813141094_0009 is not listed on IDEAS
    7. 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..
    8. Eskeland, Gunnar S. & Harrison, Ann E., 2003. "Moving to greener pastures? Multinationals and the pollution haven hypothesis," Journal of Development Economics, Elsevier, vol. 70(1), pages 1-23, February.
    9. Oster, Sharon, 1982. "The Strategic Use of Regulatory Investment by Industry Sub-Groups," Economic Inquiry, Western Economic Association International, vol. 20(4), pages 604-618, October.
    10. Roger Clarke & David Collie, 2003. "Product differentiation and the gains from trade under Bertrand duopoly," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 658-673, August.
    11. Ulph, Alistair & Valentini, Laura, 2001. " Is Environmental Dumping Greater When Plants Are Footloose?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 103(4), pages 673-688, December.
    12. 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, pages 657-678.
    13. Schleich, Joachim & Orden, David, 2000. "Environmental Quality and Industry Protection with Noncooperative versus Cooperative Domestic and Trade Policies," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 681-697, November.
    14. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, pages 83-100.
    15. Tim Jeppesen & John A. List & Henk Folmer, 2002. "Environmental Regulations and New Plant Location Decisions: Evidence from a Meta-Analysis," Journal of Regional Science, Wiley Blackwell, vol. 42(1), pages 19-49.
    16. Puller, Steven L., 2006. "The strategic use of innovation to influence regulatory standards," Journal of Environmental Economics and Management, Elsevier, vol. 52(3), pages 690-706, November.
    17. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Trade and Environment; Foreign Direct Investment; Emission tax- ation;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F18 - International Economics - - Trade - - - Trade and Environment
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • 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:una:unccee:wp0811. 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: (). General contact details of provider: http://www.unav.edu/web/facultad-de-ciencias-economicas-y-empresariales .

    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.