Do Stringent Environmental Policies Deter FDI? M&A versus Greenfield

Artikel

Strict environmental regulation may deter foreign direct investment (FDI). The paper develops the hypothesis that regulation predominantly discourages FDI that is conducted as Greenfield investment rather than mergers and acquisitions (M&A). The hypothesis is tested with German firm-level FDI data. Empirically, stricter regulation reduces new Greenfield projects in polluting industries, but indeed has a much smaller impact on the number of M&As. This significant difference is compatible with the fact that existing operations often benefit from grandfathering rules, which provide softer regulation for pre-exisiting plants, and with the expectation that for M&As part of the regulation is capitalized in the purchase price. The heterogeneous effects help explaining mixed results in previous studies that have neglected the mode of entry.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Environmental and Resource Economics ; ISSN: 1573-1502 ; Volume: 80 ; Year: 2021 ; Issue: 3 ; Pages: 603-636 ; Dordrecht: Springer Netherlands

Classification and Topics

• Classification: Wirtschaft ; Multinational Firms; International Business ; Economic Impacts of Globalization: Environment ; Environmental Economics: General ; Environmental Economics: Government Policy
• Subject: Environmental stringency ; Entry mode ; Pollution haven hypothesis ; Foreign direct investment

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bialek, Sylwia ; Weichenrieder, Alfons J.
• Event: Veröffentlichung
• (who): Springer Netherlands
• (where): Dordrecht
• (when): 2021

Further information

• DOI: doi:10.1007/s10640-021-00600-x
• Last update: 10.03.2025, 11:42 AM CET