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Do Energy Prices Drive Outward FDI? Evidence from a Sample of Listed Firms

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  • Grégoire Garsous
  • Tomasz Kozluk
  • Dennis Dlugosch

Abstract

Affordable energy is often argued to be a vital condition for manufacturing industries to be able to compete on global markets. Consequently, the idea of introducing a (unilateral) carbon tax is usually opposed on the grounds of potential losses of competitiveness and leakage of economic activity abroad. In this paper, we shed light on one potential channel of such effects—the impact of energy prices on firms’ outward FDI. Using an instrumental variable strategy we estimate the longer-term effects on a sample of listed firms from 9 manufacturing sectors in 24 OECD countries over 1995-2008. The results suggest that relative energy prices—that is the difference between domestic energy prices and prices in the potential FDI destination—are significantly and asymmetrically related to firms’ outward FDI asset share. Only firms that faced increases in the relative energy prices have increased their international asset position and this effect was relatively small.

Suggested Citation

  • Grégoire Garsous & Tomasz Kozluk & Dennis Dlugosch, 2020. "Do Energy Prices Drive Outward FDI? Evidence from a Sample of Listed Firms," The Energy Journal, , vol. 41(3), pages 63-80, May.
    • Handle: RePEc:sae:enejou:v:41:y:2020:i:3:p:63-80
    DOI: 10.5547/01956574.41.3.ggar
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    References listed on IDEAS

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    1. 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.
    2. Chung, Sunghoon, 2014. "Environmental regulation and foreign direct investment: Evidence from South Korea," Journal of Development Economics, Elsevier, vol. 108(C), pages 222-236.
    3. 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.
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    Cited by:

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    2. Bettarelli, Luca & Furceri, Davide & Pizzuto, Pietro & Shakoor, Nadia, 2024. "Climate change policies and income inequality," Energy Policy, Elsevier, vol. 191(C).

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