Environmental Regulations, Outward FDI and Heterogeneous Firms: Are Countries Used as Pollution Havens?

University of Nottingham, GEP Research Paper 2009/28

43 Pages Posted: 2 Dec 2009

See all articles by Richard Kneller

Richard Kneller

University of Nottingham

Edward Manderson

University of Nottingham - School of Economics

Date Written: November 30, 2009

Abstract

We consider whether pollution-intensive FDI tends to outflow from a country which maintains stringent environmental regulations and into countries with weak environmental regulations. We consider this issue by incorporating the predictions from the recent heterogeneous firm models of international trade into an empirical model of outward FDI by UK firms. We find that environmental regulations are not a robustly significant determinant of the internationalisation decision, but a pollution-intensive multinational enterprise’s location decision will be affected by the environmental regime in place in the host country. Any deterrent effect is however highly conditional upon other factors, notably corruption.

Keywords: Pollution haven, Foreign investment, Environmental regulation

JEL Classification: F18, F23, Q56

Suggested Citation

Kneller, Richard and Manderson, Edward, Environmental Regulations, Outward FDI and Heterogeneous Firms: Are Countries Used as Pollution Havens? (November 30, 2009). University of Nottingham, GEP Research Paper 2009/28. Available at SSRN: https://ssrn.com/abstract=1515605 or http://dx.doi.org/10.2139/ssrn.1515605

Richard Kneller (Contact Author)

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Edward Manderson

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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