Environmental Regulation: An Incentive for Foreign Direct Investment

11 Pages Posted: 24 Jul 2011

See all articles by Bouwe Dijkstra

Bouwe Dijkstra

University of Nottingham - School of Economics

Anuj Joshua Mathew

affiliation not provided to SSRN

Arijit Mukherjee

University of Nottingham - School of Economics

Date Written: August 2011

Abstract

Empirical evidence has so far failed to confirm that lenient environmental regulation attracts investment from polluting firms. In a Cournot duopoly with a foreign firm and a domestic firm, we show that the foreign firm may want to relocate to the domestic country with stricter environmental regulation, when the move raises its rival domestic firm's cost by sufficiently more than its own. The domestic (foreign) country's welfare is (usually) lower with foreign direct investment.

Suggested Citation

Dijkstra, Bouwe and Mathew, Anuj Joshua and Mukherjee, Arijit, Environmental Regulation: An Incentive for Foreign Direct Investment (August 2011). Review of International Economics, Vol. 19, Issue 3, pp. 568-578, 2011. Available at SSRN: https://ssrn.com/abstract=1892621 or http://dx.doi.org/10.1111/j.1467-9396.2011.00966.x

Bouwe Dijkstra (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 115 8467205 (Phone)
+44 115 9514159 (Fax)

Anuj Joshua Mathew

affiliation not provided to SSRN

Arijit Mukherjee

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 115 9514733 (Phone)
+44 115 9514159 (Fax)

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