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Environmental Policy Stringency and Foreign Direct Investment: New Insights from a Gravity Model Approach

Julia Bahlmann () and Paul Welfens
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Julia Bahlmann: Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW)

No disbei294, EIIW Discussion paper from Universitätsbibliothek Wuppertal, University Library

Abstract: There is a long debate about potential pollution haven effects existing in the global North and South in the context of rising environmental stringency. This contribution takes a fresh look at intra-OECD foreign direct investment and employs a modern FDI gravity modelling approach to shed more light on these issues. There is clear evidence in favor of the pollution haven hypothesis - countries with weaker environmental policy and regulation are able to attract relatively high FDI inflows so that new challenges for environmental policy and international cooperation in environmental policy have to be considered. As regards environmental policy, more political cooperation between the OECD countries seems to be required in order to prevent or mitigate "quasi-carbon leakage" effects from undermining the effectiveness of environmental and climate policy. The evidence obtained from this analysis of OECD countries suggests the benefit of extending this research in future to other country groups, to include countries in Asia or Latin America and Africa.

Keywords: FDI; Pollution Haven Countries; OECD; Gravity Modelling; Environmental Policy (search for similar items in EconPapers)
JEL-codes: C23 F21 Q43 Q50 Q58 (search for similar items in EconPapers)
Pages: 82 Pages
Date: 2021-04
New Economics Papers: this item is included in nep-ene, nep-env, nep-int and nep-res
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