Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/287406 
Year of Publication: 
2021
Citation: 
[Journal:] Environmental and Resource Economics [ISSN:] 1573-1502 [Volume:] 80 [Issue:] 3 [Publisher:] Springer Netherlands [Place:] Dordrecht [Year:] 2021 [Pages:] 603-636
Publisher: 
Springer Netherlands, Dordrecht
Abstract: 
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.
Subjects: 
Environmental stringency
Entry mode
Pollution haven hypothesis
Foreign direct investment
JEL: 
F23
F64
Q50
Q58
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article
Document Version: 
Published Version

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