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

Aurelien Saussay and Misato Sato

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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.

Keywords: FDI; mergers and aquistions; energy prices; firm location; competitiveness impacts; carbon leakage (search for similar items in EconPapers)
JEL-codes: F21 H23 Q52 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2024-09-01
New Economics Papers: this item is included in nep-ene, nep-env, nep-geo, nep-ifn and nep-int
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Published in Journal of Environmental Economics and Management, 1, September, 2024, 127. ISSN: 0095-0696

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:123034

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