IDEAS home Printed from https://ideas.repec.org/a/kap/enreec/v68y2017i1d10.1007_s10640-017-0145-4.html
   My bibliography  Save this article

The Structure of UK Outbound FDI and Environmental Regulation

Author

Listed:
  • Abay Mulatu

    (Coventry University)

Abstract

We study whether the pattern of outbound Foreign Direct Investment (FDI) is influenced by host countries’ environmental regulations. We employ a general empirical location model that captures interactions between industry attributes and host country characteristics in determining firm location. We use data on UK-based multinational activity in 64 countries and 23 industries over the period 2002–2006. Our results suggest a significant effect of environmental policy on the pattern of UK outbound FDI—a pollution haven effect. A one standard deviation increase in environmental laxity increases FDI (assets) in industries that are above-average pollution intensive by 28%.

Suggested Citation

  • Abay Mulatu, 2017. "The Structure of UK Outbound FDI and Environmental Regulation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(1), pages 65-96, September.
    • Handle: RePEc:kap:enreec:v:68:y:2017:i:1:d:10.1007_s10640-017-0145-4
    DOI: 10.1007/s10640-017-0145-4
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10640-017-0145-4
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10640-017-0145-4?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Abay Mulatu & Reyer Gerlagh & Dan Rigby & Ada Wossink, 2010. "Environmental Regulation and Industry Location in Europe," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 45(4), pages 459-479, April.
    2. Paul Krugman & Anthony J. Venables, 1995. "Globalization and the Inequality of Nations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(4), pages 857-880.
    3. Edward Manderson & Richard Kneller, 2012. "Environmental Regulations, Outward FDI and Heterogeneous Firms: Are Countries Used as Pollution Havens?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(3), pages 317-352, March.
    4. Ben Kheder, Sonia & Zugravu, Natalia, 2012. "Environmental regulation and French firms location abroad: An economic geography model in an international comparative study," Ecological Economics, Elsevier, vol. 77(C), pages 48-61.
    5. John Romalis, 2004. "Factor Proportions and the Structure of Commodity Trade," American Economic Review, American Economic Association, vol. 94(1), pages 67-97, March.
    6. List, John A. & Co, Catherine Y., 2000. "The Effects of Environmental Regulations on Foreign Direct Investment," Journal of Environmental Economics and Management, Elsevier, vol. 40(1), pages 1-20, July.
    7. Judith M. Dean & Mary E. Lovely & Hua Wang, 2017. "Are foreign investors attracted to weak environmental regulations? Evaluating the evidence from China," World Scientific Book Chapters, in: Mary E Lovely (ed.), International Economic Integration and Domestic Performance, chapter 9, pages 155-167, World Scientific Publishing Co. Pte. Ltd..
    8. Rema Hanna, 2010. "US Environmental Regulation and FDI: Evidence from a Panel of US-Based Multinational Firms," American Economic Journal: Applied Economics, American Economic Association, vol. 2(3), pages 158-189, July.
    9. Brian R. Copeland & M. Scott Taylor, 2004. "Trade, Growth, and the Environment," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 7-71, March.
    10. Stock, James H & Wright, Jonathan H & Yogo, Motohiro, 2002. "A Survey of Weak Instruments and Weak Identification in Generalized Method of Moments," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(4), pages 518-529, October.
    11. Ralf Martin & Mirabelle Mu?ls & Laure B. de Preux & Ulrich J. Wagner, 2014. "Industry Compensation under Relocation Risk: A Firm-Level Analysis of the EU Emissions Trading Scheme," American Economic Review, American Economic Association, vol. 104(8), pages 2482-2508, August.
    12. repec:clg:wpaper:2008-02 is not listed on IDEAS
    13. Daniel Millimet & John List, 2004. "The Case of the Missing Pollution Haven Hypothesis," Journal of Regulatory Economics, Springer, vol. 26(3), pages 239-262, August.
    14. Fredriksson, Per G. & List, John A. & Millimet, Daniel L., 2003. "Bureaucratic corruption, environmental policy and inbound US FDI: theory and evidence," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1407-1430, August.
    15. Yuquing Xing & Charles Kolstad, 2002. "Do Lax Environmental Regulations Attract Foreign Investment?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 21(1), pages 1-22, January.
    16. Cole, Matthew A. & Elliott, Robert J.R. & Shimamoto, Kenichi, 2005. "Why the grass is not always greener: the competing effects of environmental regulations and factor intensities on US specialization," Ecological Economics, Elsevier, vol. 54(1), pages 95-109, July.
    17. Steven Poelhekke & Frederick Ploeg, 2015. "Green Havens and Pollution Havens," The World Economy, Wiley Blackwell, vol. 38(7), pages 1159-1178, July.
    18. Reyer Gerlagh & Nicole A. Mathys & Thomas O. Michielsen, 2015. "Energy Abundance, Trade and Specialization," The Energy Journal, , vol. 36(3), pages 235-246, July.
    19. Cole, Matthew A. & Fredriksson, Per G., 2009. "Institutionalized pollution havens," Ecological Economics, Elsevier, vol. 68(4), pages 1239-1256, February.
    20. Thomas O. Michielsen, 2013. "The distribution of energy-intensive sectors in the USA," Journal of Economic Geography, Oxford University Press, vol. 13(5), pages 871-888, September.
    21. Debaere, Peter & Demiroglu, Ufuk, 2003. "On the similarity of country endowments," Journal of International Economics, Elsevier, vol. 59(1), pages 101-136, January.
    22. Arik Levinson & M. Scott Taylor, 2008. "Unmasking The Pollution Haven Effect," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(1), pages 223-254, February.
    23. Adam B. Jaffe et al., 1995. "Environmental Regulation and the Competitiveness of U.S. Manufacturing: What Does the Evidence Tell Us?," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 132-163, March.
    24. Eskeland, Gunnar S. & Harrison, Ann E., 2003. "Moving to greener pastures? Multinationals and the pollution haven hypothesis," Journal of Development Economics, Elsevier, vol. 70(1), pages 1-23, February.
    25. Ulrich Wagner & Christopher Timmins, 2009. "Agglomeration Effects in Foreign Direct Investment and the Pollution Haven Hypothesis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(2), pages 231-256, June.
    26. repec:hhs:iuiwop:430 is not listed on IDEAS
    27. Andreas Waldkirch & Munisamy Gopinath, 2008. "Pollution Control and Foreign Direct Investment in Mexico: An Industry-Level Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 41(3), pages 289-313, November.
    28. Kellenberg, Derek K., 2009. "An empirical investigation of the pollution haven effect with strategic environment and trade policy," Journal of International Economics, Elsevier, vol. 78(2), pages 242-255, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Florian Rey & Thierry Madiès, 2021. "Addressing the concerns about carbon leakage in the implementation of carbon pricing policies: a focus on the issue of competitiveness," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 48(1), pages 53-75, March.
    2. Wang, Chao & Zhang, Yue-Jun, 2022. "The effect of environmental regulation and skill premium on the inflow of FDI:Evidence from Chinese industrial sectors," International Review of Economics & Finance, Elsevier, vol. 81(C), pages 227-242.
    3. Shi Wang & Wen Zhang & Hua Wang & Jue Wang & Mu-Jun Jiang, 2021. "How Does Income Inequality Influence Environmental Regulation in the Context of Corruption? A Panel Threshold Analysis Based on Chinese Provincial Data," IJERPH, MDPI, vol. 18(15), pages 1-18, July.
    4. Xiaoxiao Wu & Hongfu Chen & Ying Qian & Quanyong Lei, 2024. "RETRACTED ARTICLE: Fostering social innovation in the energy transition: entrepreneurial solutions for a sustainable economy," Economic Change and Restructuring, Springer, vol. 57(2), pages 1-19, April.
    5. José M. Cansino & Rocio Román-Collado & Juan C. Molina, 2019. "Quality of Institutions, Technological Progress, and Pollution Havens in Latin America. An Analysis of the Environmental Kuznets Curve Hypothesis," Sustainability, MDPI, vol. 11(13), pages 1-20, July.
    6. Chao Wang & Yue‐Jun Zhang, 2020. "Does environmental regulation policy help improve green production performance? Evidence from China's industry," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 27(2), pages 937-951, March.
    7. Tan, Jianhua & Chen, Tao & Zhang, Peng & Chan, Kam C., 2021. "Environmental rule enforcement and cash holdings: Evidence from a natural experiment," Economic Modelling, Elsevier, vol. 103(C).
    8. 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.
    9. Li, Na & Dilanchiev, Azer & Mustafa, Ghulam, 2023. "From oil and mineral extraction to renewable energy: Analyzing the efficiency of green technology innovation in the transformation of the oil and gas sector in the extractive industry," Resources Policy, Elsevier, vol. 86(PA).
    10. Jinze Li & Rijia Ding, 2022. "Financial Decentralization and Environmental Pollution Research—An Empirical Test Based on Data from 279 Cities in China," Sustainability, MDPI, vol. 14(13), pages 1-20, June.
    11. Lv, Chengchao & Shao, Changhua & Lee, Chien-Chiang, 2021. "Green technology innovation and financial development: Do environmental regulation and innovation output matter?," Energy Economics, Elsevier, vol. 98(C).
    12. Feilan Wang & Mengmeng Jin & Jianfeng Li & Yushuo Zhang & Junbo Chen, 2022. "Profound Impact of Economic Openness and Digital Economy towards a Sustainable Development: A New Look at RCEP Economies," Sustainability, MDPI, vol. 14(21), pages 1-21, October.
    13. Gerard Meijden & Frederick Ploeg & Cees Withagen, 2017. "Frontiers of Climate Change Economics," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(1), pages 1-14, September.
    14. Jensen, Camilla & Mina, Andrea, 2019. "Did transition bring cleaner air? Effects of ownership, territorial and technology policy on air pollution," Ecological Economics, Elsevier, vol. 165(C), pages 1-1.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Antoine Dechezleprêtre & Misato Sato, 2017. "The Impacts of Environmental Regulations on Competitiveness," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 11(2), pages 183-206.
    2. Sylwia Bialek & Alfons J. Weichenrieder, 2021. "Do Stringent Environmental Policies Deter FDI? M&A versus Greenfield," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 80(3), pages 603-636, November.
    3. Grégoire Garsous & Tomasz Kozluk, 2017. "Foreign Direct Investment and The Pollution Haven Hypothesis: Evidence from Listed Firms," OECD Economics Department Working Papers 1379, OECD Publishing.
    4. Saussay, Aurélien & Zugravu-Soilita, Natalia, 2023. "International production chains and the pollution offshoring hypothesis: An empirical investigation," Resource and Energy Economics, Elsevier, vol. 73(C).
    5. José-Antonio Monteiro & Madina Kukenova, 2008. "Does Lax Environmental Regulation Attract FDI When Accounting For "Third-Country" Effects?," IRENE Working Papers 08-01, IRENE Institute of Economic Research.
    6. Edward Manderson & Richard Kneller, 2012. "Environmental Regulations, Outward FDI and Heterogeneous Firms: Are Countries Used as Pollution Havens?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(3), pages 317-352, March.
    7. 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.
    8. Chung, Sunghoon, 2014. "Environmental regulation and foreign direct investment: Evidence from South Korea," Journal of Development Economics, Elsevier, vol. 108(C), pages 222-236.
    9. Millimet, Daniel L. & Roy, Jayjit, 2011. "Three New Empirical Tests of the Pollution Haven Hypothesis When Environmental Regulation is Endogenous," IZA Discussion Papers 5911, Institute of Labor Economics (IZA).
    10. Ben Kheder, Sonia & Zugravu, Natalia, 2012. "Environmental regulation and French firms location abroad: An economic geography model in an international comparative study," Ecological Economics, Elsevier, vol. 77(C), pages 48-61.
    11. Rezza, Alief A., 2013. "FDI and pollution havens: Evidence from the Norwegian manufacturing sector," Ecological Economics, Elsevier, vol. 90(C), pages 140-149.
    12. 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.
    13. Zhonghua Cheng & Lianshui Li & Jun Liu, 2018. "The spatial correlation and interaction between environmental regulation and foreign direct investment," Journal of Regulatory Economics, Springer, vol. 54(2), pages 124-146, October.
    14. Imad Moosa, 2019. "The Environmental Effects of FDI: Evidence from MENA Countries," Working Papers 1321, Economic Research Forum, revised 21 Aug 2019.
    15. Sunghoon Chung, 2012. "Environmental Regulation and the Pattern of Outward FDI: An Empirical Assessment of the Pollution Haven Hypothesis," Departmental Working Papers 1203, Southern Methodist University, Department of Economics.
    16. Yuqing Ge & Yucai Hu & Shenggang Ren, 2020. "Environmental Regulation and Foreign Direct Investment: Evidence from China’s Eleventh and Twelfth Five-Year Plans," Sustainability, MDPI, vol. 12(6), pages 1-18, March.
    17. Millimet, Daniel L., 2013. "Environmental Federalism: A Survey of the Empirical Literature," IZA Discussion Papers 7831, Institute of Labor Economics (IZA).
    18. Koch, Nicolas & Basse Mama, Houdou, 2019. "Does the EU Emissions Trading System induce investment leakage? Evidence from German multinational firms," Energy Economics, Elsevier, vol. 81(C), pages 479-492.
    19. Liu, Wei & Zhao, Zhihui & Wen, Zhao & Cheng, Shixiong, 2022. "Environmental regulation and OFDI: Evidence from Chinese listed firms," Economic Analysis and Policy, Elsevier, vol. 75(C), pages 191-208.
    20. Lorena D’Agostino, 2015. "How MNEs respond to environmental regulation: integrating the Porter hypothesis and the pollution haven hypothesis," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 32(2), pages 245-269, August.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kap:enreec:v:68:y:2017:i:1:d:10.1007_s10640-017-0145-4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.