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Foreign Direct Investment and Environmental Taxes

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  • Roberto A. De Santis
  • Frank Stähler

Abstract

. This paper studies the effect of foreign direct investment (FDI) on environmental policy stringency in a two‐country model with trade costs, where FDI could be unilateral and bilateral and both governments address local pollution through environmental taxes. We show that FDI does not give rise to ecological dumping because the host country has an incentive to shift rents away from the source country toward the host country. Environmental policy strategies and welfare effects are studied under the assumption that parameter values support FDI to be profitable.

Suggested Citation

  • Roberto A. De Santis & Frank Stähler, 2009. "Foreign Direct Investment and Environmental Taxes," German Economic Review, Verein für Socialpolitik, vol. 10(1), pages 115-135, February.
    • Handle: RePEc:bla:germec:v:10:y:2009:i:1:p:115-135
    DOI: 10.1111/j.1468-0475.2008.00444.x
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    Cited by:

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    2. Yan, Yan & Li, Yi, 2023. "Technology spillovers, strategic environmental policy, and foreign direct investment," Energy Economics, Elsevier, vol. 127(PA).
    3. Baomin Dong & Jiong Gong & Xin Zhao, 2012. "FDI and environmental regulation: pollution haven or a race to the top?," Journal of Regulatory Economics, Springer, vol. 41(2), pages 216-237, April.
    4. Takeshi Iida & Arijit Mukherjee, 2020. "Make and buy in a polluting industry," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(6), pages 1852-1874, December.
    5. Chia-Jen Chang & Chih-Ta Yen & Yu-Zhen Lin, 2024. "Commodity taxation principle, heterogeneous goods, and endogenous choice between price and quantity contracts," Journal of Economics, Springer, vol. 143(2), pages 111-140, October.
    6. Jiyun Cao & Arijit Mukherjee, 2024. "Foreign Direct Investment and Technology Licensing in a Polluting Industry," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 87(9), pages 2361-2399, September.
    7. Savoiu, Gheorghe & Dinu, Vasile & Ciuca, Suzana, 2013. "Foreign Direct Investment based on Country Risk and other Macroconomic Factors. Econometric Models for Romanian Economy," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 39-61, March.
    8. Scott McCracken, 2015. "The choice of commodity tax base in the presence of horizontal foreign direct investment," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(5), pages 811-833, October.
    9. Mingquan Li & Qi Wang, 2020. "Does industrial relocation alleviate environmental pollution? A mathematical economics analysis," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 22(5), pages 4673-4698, June.

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F18 - International Economics - - Trade - - - Trade and Environment

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