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Impact of environmental regulation on M&As in the manufacturing sector

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  • Carril-Caccia, Federico
  • Milgram Baleix, Juliette

Abstract

We test the influence of environmental regulation (ER) on the location decision of cross-border Mergers and Acquisitions (M&As) for a large sample of countries, sectors, and years using a structural gravity model. Unlike other studies, our results confirm the pollution haven hypothesis according to which more stringent ER makes countries less attractive to foreign investors planning to invest through M&As, compared with domestic investors. Policies that set quantitative limits on emissions have similar discouraging effects on cross-border investment to taxes on emissions. We find no evidence that the impact could be stronger in dirty sectors than in clean sectors. The impact of ER differs depending on country type according to their level of development, reflecting the fact that investments in developed countries and BRICS respond to different motivations. In emerging countries, lax ER could attract significantly more inward M&As. In developed countries, ER has a less discouraging effect.

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  • Carril-Caccia, Federico & Milgram Baleix, Juliette, 2024. "Impact of environmental regulation on M&As in the manufacturing sector," Journal of Environmental Economics and Management, Elsevier, vol. 127(C).
    • Handle: RePEc:eee:jeeman:v:127:y:2024:i:c:s0095069624001128
    DOI: 10.1016/j.jeem.2024.103038
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    More about this item

    Keywords

    Environmental stringency; Pollution havens; M&As; Structural gravity; Polluting sectors;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F64 - International Economics - - Economic Impacts of Globalization - - - Environment
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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