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

39 Pages Posted: 9 Apr 2015

See all articles by Sylwia Bialek

Sylwia Bialek

Goethe University Frankfurt

Alfons J. Weichenrieder

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy; Vienna University of Economics and Business; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 31, 2015

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.

Keywords: FDI, environmental stringency, mixed logit, entry mode, PHH

JEL Classification: F640, Q500, Q580

Suggested Citation

Bialek, Sylwia and Weichenrieder, Alfons J., Do Stringent Environmental Policies Deter FDI? M&A versus Greenfield (March 31, 2015). CESifo Working Paper Series No. 5262, Available at SSRN: https://ssrn.com/abstract=2592298

Sylwia Bialek

Goethe University Frankfurt ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

Alfons J. Weichenrieder (Contact Author)

Goethe University Frankfurt - Department of Applied Econometrics and International Economic Policy ( email )

United States

HOME PAGE: http://www.uni-frankfurt.de/fb02/weichenrieder/

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

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