The effects of energy costs on firm re-location decisions

Lucia Lavric and Nick Hanley

No 2014-02, Discussion Papers in Environment and Development Economics from University of St. Andrews, School of Geography and Sustainable Development

Abstract: Energy costs are partly driven by environmental policy choices. In this paper, the effects of variations in energy costs – as measured by end-user electricity prices – on firm relocation decisions are investigated. Using a discrete choice model a nd a data base which has not previously been exploited to study this problem, we investigate the effects of variations in energy costs both for a sub-set of re-locating European firms in terms of which country they move to; and then for a larger set of firms in terms of the decision to re-locate or not in response to higher energy prices. We find that energy costs play a significant role in determining relocation destinations, and that this effect is asymmetric between firms moving into and out of a country , and between high energy intensity and low energy intensity sectors. The findings of the paper have implications for the Pollution Havens Hypothesis, since they show the extent to which the effects of climate policy on domestic energy costs can be expected to impact on firm relocation decisions both into and out of a country.

Keywords: firm re-location; energy costs; Pollution Havens Hypothesis; climate policy; carbonleakage (search for similar items in EconPapers)
JEL-codes: D22 F18 Q41 Q52 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2014-08
New Economics Papers: this item is included in nep-dcm, nep-ene, nep-env and nep-eur
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Citations: View citations in EconPapers (1)

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