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Multinationals and environmental regulation: are foreign firms harmful?

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  • Dardati, Evangelina
  • Saygili, Meryem

Abstract

The rise of globalization has directed the attention of economists to the effect of trade and multinational production on the environment. We explore whether multinational firms, frequently the target of environmentalists, are harmful for a host country's environment. We introduce environmental regulation in a two-country model of heterogeneous firms with monopolistic competition. Using plant-level data from Chile, we test the model implications. We find that foreign firms are cleaner than domestic plants even after controlling for productivity that is likely to be negatively correlated with emissions. We also show that increasing the stringency of environmental regulations in a previously unregulated market affects the domestic firms more than the multinationals.

Suggested Citation

  • Dardati, Evangelina & Saygili, Meryem, 2012. "Multinationals and environmental regulation: are foreign firms harmful?," Environment and Development Economics, Cambridge University Press, vol. 17(2), pages 163-186, April.
    • Handle: RePEc:cup:endeec:v:17:y:2012:i:02:p:163-186_00
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    Cited by:

    1. Banerjee, Soumendra Nath & Roy, Jayjit & Yasar, Mahmut, 2021. "Exporting and pollution abatement expenditure: Evidence from firm-level data," Journal of Environmental Economics and Management, Elsevier, vol. 105(C).
    2. Lutz, Benjamin Johannes & Massier, Philipp & Sommerfeld, Katrin & Löschel, Andreas, 2017. "Drivers of energy efficiency in German manufacturing: A firm-level stochastic frontier analysis," CAWM Discussion Papers 99, University of Münster, Münster Center for Economic Policy (MEP).
    3. Görg, Holger, 2018. "Making investment work for productivity-enhancing, inclusive and sustainable development: What we know, and what we would still like to know," KCG Policy Papers 3, Kiel Centre for Globalization (KCG).
    4. Yixing Sun & Mingyang Zhang & Yicheng Zhu, 2023. "Do Foreign Direct Investment Inflows in the Producer Service Sector Promote Green Total Factor Productivity? Evidence from China," Sustainability, MDPI, vol. 15(14), pages 1-19, July.
    5. Zheng, Mingbo & Feng, Gen-Fu & Jang, Chyi-Lu & Chang, Chun-Ping, 2021. "Terrorism and green innovation in renewable energy," Energy Economics, Elsevier, vol. 104(C).
    6. Roy, Jayjit & Yasar, Mahmut, 2015. "Energy efficiency and exporting: Evidence from firm-level data," Energy Economics, Elsevier, vol. 52(PA), pages 127-135.
    7. Shien Xiao & Langang Feng & Shu Shang, 2022. "The Environmental Effect of Industrial Transfer in the Beijing–Tianjin–Hebei Region," Sustainability, MDPI, vol. 14(20), pages 1-20, October.
    8. Luis Gautier, 2017. "Local content and emission taxes when the number of foreign firms is endogenous," Journal of Economics, Springer, vol. 122(3), pages 239-266, November.
    9. Yan Wang & Tao Zhou & Hao Chen & Zhihai Rong, 2019. "Environmental Homogenization or Heterogenization? The Effects of Globalization on Carbon Dioxide Emissions, 1970–2014," Sustainability, MDPI, vol. 11(10), pages 1-23, May.
    10. Liu, Liyun & Zhao, Zhenzhi & Su, Bin & Ng, Tsan Sheng & Zhang, Mingming & Qi, Lin, 2021. "Structural breakpoints in the relationship between outward foreign direct investment and green innovation: An empirical study in China," Energy Economics, Elsevier, vol. 103(C).
    11. Cao, Xinghua & Chen, Hao, 2024. "The impact of public participation in environmental governance on the technical efficiency of enterprise," Finance Research Letters, Elsevier, vol. 62(PA).
    12. Natalia Zugravu-Soilita, 2017. "How does Foreign Direct Investment Affect Pollution? Toward a Better Understanding of the Direct and Conditional Effects," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 66(2), pages 293-338, February.
    13. Arimura, Toshihide & Iguchi, Hakaru & Michida, Etsuyo, 2014. "Product-related environmental regulation and voluntary environmental actions : impacts of RoHS and REACH in Malaysia," IDE Discussion Papers 454, Institute of Developing Economies, Japan External Trade Organization(JETRO).

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