Do Stringent Environmental Policies Deter FDI? M&A versus Greenfield
39 Pages Posted: 9 Apr 2015
Date Written: March 31, 2015
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
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