To Shut Down or To Shift: Multinationals and Environmental Regulation
نویسنده
چکیده
According to the pollution haven effect (PHE) mobile capital responds to environmental regulation by moving from countries with high regulation to those with low regulation. Previous tests of the PHE have focused on host country regulation effect. This study also examines the effect of home country regulation on foreign direct investment (FDI). I use a panel of 28 OECD countries for 1981-2000 to estimate elasticity of FDI with respect to host and home environmental regulations. I find that host regulation decreases FDI. In contrast, home environmental regulation decreases FDI into low regulation countries and increases FDI into high regulation countries. This indicates that the OECD countries with lowest environmental regulations are also most sensitive to regulations at home and abroad. JEL Classifications: F20, Q58
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