Abstract:
This study examines how environmental stringency affects the location decision of foreigndirect investments. We analyze a firm-level data set on German outbound FDI and innovate onprevious studies by controlling for the mode of entry and applying the mixed-logit analysis. Theresults show that Greenfield projects react to environmental regulation in a strongly differentway than M&As. We find robust support for pollution haven hypothesis for pollutingGreenfields. M&A investments in low polluting industries, on the other hand, seem to beattracted by stricter environmental regulation. We introduce a new instrumental variable forenvironmental stringency and apply it to verify the results.