- 31 July 2008
- WORKING PAPER SERIES - No. 921Details
- This paper studies the effect of foreign direct investment (FDI) on environmental policy stringency in a two-country model with trade costs, where FDI could be unilateral and bilateral and both governments address local pollution through environmental taxes. We show that FDI does not give rise to ecological dumping because the host country has an incentive to shift rents away from the source country towards the host country. Environmental policy strategies and welfare effects are studied under the assumption that parameter values support FDI to be profitable.
- JEL Code
- F12 : International Economics→Trade→Models of Trade with Imperfect Competition and Scale Economies, Fragmentation
F18 : International Economics→Trade→Trade and Environment
F23 : International Economics→International Factor Movements and International Business→Multinational Firms, International Business