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The impact of energy prices on industrial investment location: evidence from global firm level data

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  • Saussay, Aurelien
  • Sato, Misato

Abstract

This study examines the influence of relative energy prices on the geographical distribution of industrial investments across 41 countries. Employing a gravity model framework to analyse firms’ investment location decisions, we estimate the model using global bilateral investment flows derived from firm-level M&A data. Our findings reveal that a 10% increase in the energy price differential between two countries results in a 3.2% rise in cross-border acquisitions. This effect is most pronounced in energy-intensive industries and transactions targeting emerging economies. Furthermore, policy simulations suggest that the impact of unilateral carbon pricing on cross-border investments is modest.

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  • Saussay, Aurelien & Sato, Misato, 2024. "The impact of energy prices on industrial investment location: evidence from global firm level data," LSE Research Online Documents on Economics 123034, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:123034
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    More about this item

    Keywords

    FDI; mergers and aquistions; energy prices; firm location; competitiveness impacts; carbon leakage;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects

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